Does the Board Structure Affect the Asset Quality of the Banks? Evidence from India

Abstract

The Office of the Comptroller of the Currency (OCC) argue that poor asset quality is an outcome of the failure of bank boards in effectively monitoring the management in terms of loan policies and compliance. The current study explores the influence of board structure (board size, board independence, CEO duality, financial expertise and board meeting) on asset quality of banks, using a sample of 36 scheduled commercial banks operating in India during the period from 2001 to 2014. After addressing the issue of endogeneity, the study finds that the proportions of independent directors and financial experts have significant positive impact on asset quality. It also concludes that board size, number of board meetings and CEO duality have no significant impact on asset quality.