Abstract
This study investigates the role of board capital on bank’s efficiency for a sample of 45 banks in Vietnam over 2011–2015. Using robust panel regression, we find board capital is important in making Vietnamese bank efficient even after controlling its endogeneity issue. This study further documents that networking capital and experience capital are the important factors, but not education for bank efficiency. The findings of this research contribute to the entrenchment hypothesis in agency theory, where networking and experience can be the bargaining power for manager (agent) in securing their compensation. It also contributes to human capital theory and resource base view theory where it shows networking and experience are stratetic human capital resources for bank efficiency. The findings imply that shareholders should consider the networking and experience of board members during board elections. Future research may engage with the intervention of corporate governance monitoring or test it in other developing countries context.
Highlights
Does directors’ competency affect organization efficiency? Surprisingly, there is little evidence about the answer to this question as it is rarely found empirical research about the relationship between directors’ competency and organization effectiveness
The mean and standard deviation are 0.3302 and 0.3404, respectively. This implies that the average efficiency value in Vietnam is 0.3302, which is far from the efficient value of 1
This study contests human capital theory and agency theory in the finance research setting. It examines the phenomenon of board capital importance in the banking industry, especially, within a developing country context
Summary
Does directors’ competency affect organization efficiency? Surprisingly, there is little evidence about the answer to this question as it is rarely found empirical research about the relationship between directors’ competency and organization effectiveness. Most research emphasizes on the role economies of scale of a firm on organization efficiency, for example, the effect of capital structure (Margaritis & Psillaki, 2007), size (Moutsianas & Kosmidou, 2016), financial network (Silva et al, 2016), or income (Alhassan, 2015). This is quite intriguing considering Basel Accord III of BIS regulation and Sarbanes-Oxley Act 2002 address the importance of board competency in consolidating bankfirm performance. Building on this research gap, this research aims to empirically investigate the effect of those board competencies on organization efficiency, especially, the banking industry
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