Outside CEOs onto Bank Boards: The Drivers and Consequences of their Appointment

Abstract

Outside CEOs from non-financial firms match with boards of lending-oriented banks and are sought for their networks. They do not improve board advising and monitoring but their appointment results in lending expansion, increased bank CEO compensation, and more bank debt for their firms. The matching between outside CEOs of financial firms and bank boards is instead influenced by their expertise and improves board effectiveness. Ultimately, the lending business of banks distorts the incentives of outside CEOs from non-financial firms resulting in them not acting as truly independent directors, whereas CEOs from financial firms are valuable additions to bank boards.