Does board effectiveness matter for bank performance Evidence from India

Abstract

This study examines the impact of board effectiveness on bank performance over the period 2005/06 to 2016/17. An attempt is made to assess the link, both at aggregate level using board effectiveness index, and at disaggregate level, by exploring the effect of board composition, board structure, board activity, and board independence separately, on bank performance in India. The board's influence on the performance of public and private bank groups is also explored. The econometric results obtained using bias-corrected least squares dummy variable approach suggest that overall board effectiveness does seem to have an impact on the performance of public sector banks, while only board composition significantly explains performance of private banks in India. At disaggregated level, the CEO duality, female directors, and trained independent directors on board exert a positive impact on the bank performance. Finally, the nominee directors exert a negative influence on the performance of private banks.