Abstract
<p>We investigate the impact of board size and board composition on performance for a sample of 30 commercial banks from 2008 to 2012 in Turkey. We measure bank performance by two alternative measures widely used in the banking literature, i.e. operating return on assets (OROA) and return on assets (ROA). Controlling for bank size, credit risk, liquidity risk, net interest margin and non-interest income, the results of panel fixed effects regression suggest that board size has a significantly positive effect on bank’s financial performance. This means that Turkish commercial banks may improve their financial performance by increasing their board size. Our findings, however, show clearly that there is no significant relationship between board composition (ratio of outside directors on the board) and banks’ financial performance.</p>
Highlights
We examine the relationship between board size, percentage of outside directors and performance in the Turkish banking sector
This paper examines whether size and composition of the board of directors are associated with performance of Turkish commercial banks
Our database consists of unbalanced panel data set of all commercial banks operating in the Turkish banking sector for the period of 2008-2012
Summary
We examine the relationship between board size, percentage of outside directors and performance in the Turkish banking sector. Using a large sample of UK listed firms and controlling for different types of endogeneity, Guest (2009) finds that board size has a strong negative effect on firm profitability measured by Tobin’s Q and stock returns. Nguyen et al (2014) investigate a sample of 257 Singaporean non-financial listed firms for the period of 2008 to 2011 They conclude that the board size has a significantly negative influence on firm performance after controlling for endogeneity issue. Studies that find a positive relation between the percentage of outside independent directors on the board and firm performance are prevalent. O’Connell and Cramer (2010) report that there is a positive and significant relationship between the percentage of non-executive directors on the board and performance, measured by ROA and RET (stock market return adjusted for dividends) for firms listed on the Irish Stock Market.
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