Bank Board Research Articles

The Carrot and the Stick: Bank Bailouts and the Disciplining Role of Board Appointments

We empirically examine the Capital Purchase Program (CPP) used by the US government to bail out distressed banks and its implications for regulatory policy. We find strong evidence that a feature of the CPP—the government’s ability to appoint independent directors on the board of an assisted bank that missed six dividend payments to the Treasury—had a significant effect on bank behavior. Banks were averse to these appointments—the empirical distribution of missed payments exhibits a sharp discontinuity at five. Director appointments by the Treasury were associated with improved bank performance and lower CEO pay. (JEL G21, G28, G32, G34, G35, G38, H81)

Inside the Boardroom: Evidence from the Board Structure and Meeting Minutes of Community Banks

Community banks are critical for local economies, yet research on their corporate governance has been scarce due to limited data availability. We explore a unique, proprietary dataset of board membership and meeting minutes of failed community banks to present several stylized facts regarding their board structure and meetings. Community bank boards have fewer members and a higher percentage of insiders than larger publicly traded banks, and experience little turnover during normal times. Their meetings are held monthly and span about two hours. During times of distress, community bank boards convene less often in regularly scheduled meetings in lieu of impromptu meetings, experience higher turnover, particularly among their independent directors, and their meeting tone switches from neutral to significantly negative. Board attention during distressed times shifts towards discussion of capital and examination oversight, and away from lending activities and meeting formalities.

Who watches the watchdogs? Central bank board members and banking supervisors in Switzerland (1907–2008)

ABSTRACT The Swiss financial center developed spectacularly during the 20th century, becoming one of the main hubs for cross-border financial transactions. The regulatory environment that enabled this growth is still poorly understood. This contribution examines the government appointees who controlled the banking supervisory institutions (Swiss National Bank and Federal Banking Commission). The focus is on the individuals who supervised those two institutions and analyzes the evolution of their board members from their creation, in 1907 and 1935 respectively, to 2008. This prosopographical study – using indicators such as gender, age, education, career paths and political affiliation – seeks to determine: a) their typical socio-professional profile, b) their closeness to the banking industry and c) their representativeness of society, politics, and business. My findings highlight both significant changes in the last decade of the century, with an increase in the level of education and a drop in political affiliation, and a long-term stability of the socio-professional profile of the board members: middle-aged to elderly men, with a PhD in law or economics, considerable experience in the banking or business world, and often an affiliation with the governing political parties. Both institutions were supervised by individuals with close connections to the financial industry. They became arenas for elite networking, simultaneously failing to represent large segments of society.

Exploring the informativeness and drivers of tone during committee meetings: The case of the Federal Reserve

This paper examines the informativeness and drivers of the tone used by FOMC members to gain insights into the decision-making process of the FOMC. We use a bag-of-words approach to measure the tone of transcripts at the speaker-meeting-round level from 1992-2009 and find persistent differences in tone among FOMC members. We also document how Presidents of regional Federal Reserve Banks use a more volatile and positive tone than the Federal Reserve Bank Board of Governors members. Next, we investigate whether the tone used during FOMC deliberations is associated with future monetary policy decisions and study the drivers of differences in tone among FOMC members. Our results suggest that tone is useful in predicting future policy decisions and that differences in tone are mainly associated with the differences in the individual inflation projections of FOMC members.

Empowering women in central banking

ABSTRACT When are women appointed to the board of central banks? While progressive societal gender norms may facilitate women's ascension to leadership positions, recent research indicates that women are more likely to assume leadership positions during crisis periods. Because of the widely documented 'male dominance' in the policy domain of central banking, analyzing changes in women's descriptive representation on central bank boards provides a unique laboratory to study the role of women in economic policymaking. Building on previous literature on women's political leadership, we argue that sovereign debt crises are powerful catalysts for lifting women into leadership positions. We hypothesize that appointing women to central bank leadership positions during sovereign financial distress signals a policy change to bolster monetary policy credibility. Using data covering 90 countries from 2000 to 2017, we show that women are more likely to be appointed to central bank leadership positions during a sovereign debt crisis. A sovereign debt crisis increases the likelihood of women’s appointments to a central bank board by 21.1 percent. To mitigate concerns that our results are spurious, we implement a battery of robustness checks. Our study suggests that women's empowerment can be beneficial in restoring monetary policy credibility during sovereign financial distress.

Interpersonal population diversity in the bank boardroom and corporate misconduct

PurposeThis research empirically establishes that the interpersonal population diversity of executive board members partly explains the differences in financial misconduct across US banks. It advances the hypothesis that heterogeneity in the composition of an interpersonal population and diverse traits of board members, originating from the prehistoric course of the exodus of Homo sapiens from East Africa tens of thousands of years ago, is an important factor explaining the effectiveness of executive board monitoring with respect to a bank engaging in financial misconduct. The underlying intuition is that population-fragmented societies, characterized by mistrust, preference heterogeneity and corruption, find it difficult to sustain collective integrity action.Design/methodology/approachEmploying a panel of US banks from 1998 to 2019 we find that adding directors from countries with different levels of interpersonal population diversity is positively associated with financial misconduct as measured by enforcement and class action litigation against banks by the main regulatory agencies. Furthermore, we document that the more population-diverse bank boards are more likely to commit misconduct, consistent with a mechanism of inter-generational transmission of cultural norms of mistrust and non-cooperation.FindingsWe find that adding directors from countries with different levels of interpersonal population diversity is positively associated with financial misconduct as measured by enforcement and class action litigation against banks by the main regulatory agencies. These results are robust to controlling for bank-specific variables, including other board characteristics, and to the use of instrumental variables.Practical implicationsThe findings suggest that reducing financial misconduct by banks likely requires reducing the interpersonal population diversity of banks’ executive boards.Originality/valueWe show how bank boards with different interpersonal population diversity impact the likelihood of engaging in misconduct provides evidence of the microeconomic effects of interpersonal population diversity. We show the negative results of diversity that they can have on the management of a firm given that populated diverse boards are more likely to lead to higher levels of misconduct. Our evidence reveals that banks having interpersonal population fragmented boards are more likely to commit misconduct given the cultural norms of mistrust and the lack of societal cohesiveness.

Banking on trust: exploring the relationship between Federal Reserve directors and financial institutions

PurposeThis study aims to analyze the risk profile of banks whose managers sit on Federal Reserve district bank boards in 2023. In particular, to analyze the impact tha Federal Reserve bank directors have on their own banks.Design/methodology/approachUse a matched sample approach to perform univariate analysis and multiple regression methodology to study whether banks whose managers sit on Federal Reserve Bank boards differ in risk profile from banks whose managers do not sit on Federal Reserve district boards.FindingsThere is limited evidence that banks managed by Fed directors have different capital ratios and leverage ratios relative to non-Fed director banks. There does appear to be a slight difference in the growth of Held-to-Maturity (HTM) Securities between the two samples. Specifically, banks managed by a Fed director saw their HTM portfolio grow over the study period, while banks managed by non-Fed directors reduced their HTM securities. Overall, the results suggest that bank directors on Federal Reserve district boards do so with no apparent detriment to the banks that they manage.Research limitations/implicationsResults of this study suggest that stakeholder director relationships are not associated with higher risk-taking at director banks. This study is unique in that, rather than looking at how director ties might influence the firm that they are on the board of, the focus here is how the firm (the Fed district, in this case) might influence director affiliations. Limitations include a small sample size (70 banks, including the matched sample), and data over a short time horizon. Additional measures of risk can also be analyzed in future research.Practical implicationsWhile there has been much speculation in the industry and in the press regarding the conflict of interest involving bank directors on Fed district boards, this research suggests there is little evidence of any risk differential involving these directors and their specialties to the Fed.Originality/valueThis study involves a unique approach to corporate governance analysis, whereby any conflict of interest that might exist between directors and the firm is studied from an alternate angle – in particular, whether the association with a regulator’s board impacts the director firm’s risk. Furthermore, with the recent events in the banking industry involving the collapse of several banks, including Silicon Valley, the notion that bank management participating on the boards of directors of their own regulator seemed a worthwhile question as to whether this diminished the safety and soundness of the banks that they run.

Bank board diversity on risk and value: evidence from Taiwan

ABSTRACT This study uses the banking industry in Taiwan to investigate how board diversity affects bank’s risk and value. The results show that board gender diversity reduces bank’s risks with lower non-performing loans and financial leverage, while board ethnicity diversity also decreases non-performing loans but not leverage. Both gender diversity and ethnicity diversity improve bank value measured by Tobin’s Q. Our results are robust across different model specifications, after controlling for time-invariant unobservable bank characteristics and addressing the concerns of endogeneity and causality. We show that the gender diversity in government-held banks is more effective in managing risk and enhancing value than that of the private banks. Both gender and ethnicity diversity appear to be the Holy Grail in the Taiwanese banks as they can enhance bank value and lower bank risk. Our results provide important policy implications for the banks and regulators in Taiwan and other markets.

An Empirical Analysis of Director Turnover in US Banks During the Financial Crisis

We examine the impact of bank risk-taking and performance on the director labor market outcomes of 3,263 bank directors associated with 279 publicly listed US banks during the financial crisis and subsequently. We find that risk-taking before the financial crisis increases the likelihood of turnover during the financial crisis for bank directors, particularly if the bank does not perform well relative to its peers. Consistent with the evidence for directors of non-financial firms, we find that directors of banks that performed relatively well during the financial crisis were less likely to experience turnover on the bank board. Surprisingly, the directors leaving the board before turning 70 years of age held fewer committee assignments, were less busy, had smaller networks, were less likely to be independent, and with larger banks and boards. Overall, we find evidence of bank performance influencing director turnover during and after the financial crisis.

Corruption and Bank Risk‐Taking in Dual Banking Systems

ABSTRACTResearch Question/IssueWe investigate whether the risk‐taking of Islamic banks is affected differently by corruption compared to conventional banks. We also examine whether the characteristics of the Shari'ah Supervisory Board (SSB) of Islamic banks and the characteristics of the board of directors of conventional banks play an effective role in moderating such an effect.Research Findings/InsightsWe find consistent evidence that banks in countries with higher corruption have higher bank risk for both conventional and Islamic banks. However, this association is attenuated by the size of the SSB, the presence of female board members, and higher academic qualifications of SSB members. For conventional banks, the moderating effect of the presence of female directors and academically qualified members on the board of directors is also prevalent but to a lesser extent.Theoretical/Academic ImplicationsThis study contributes to the corporate finance literature more generally by highlighting the role played by corporate governance, particularly the presence of female members and academically qualified members on the SSBs of Islamic banks and on the board of directors of conventional banks, in mitigating the effect of corruption on bank risk‐taking for the two bank types.Practitioner/Policy ImplicationsOur findings are based on a matched sample of banks operating in 10 OIC (Organization of Islamic Cooperation) countries and have important implications for bank stability and bank governance reforms. On the detrimental side, urgency of the anti‐corruption campaigns in these countries is justified due to the significant effect of corruption on risk‐taking for both conventional and Islamic banks. Overall, to better fight corruption in countries with dual banking systems, there is a need to enforce stricter rules for all types of banks.

Managing bank liquidity hoarding during uncertain times: The role of board gender diversity

AbstractThis paper examines the effect of executive board gender diversity on the relationship between economic policy uncertainty (EPU) and bank liquidity hoarding (LH). We focus on the Russian banking sector, which, relative to most of the world, has a high share of women on bank executive boards. Using the news‐based EPU index developed by Baker, Bloom, and Davis (2016) and LH measures proposed by Berger, Guedhami, Kim, and Li (2022), we exploit a unique dataset from the Russian banking sector. While higher economic policy uncertainty tends to increase liquidity hoarding, we find that this effect diminishes as the gender diversity of the board increases. We attribute this finding to the moderating influence of gender diversity on stability and overreaction in decision‐making. Additionally, we find that the channel through which board gender diversity affects the impact of economic policy uncertainty on liquidity hoarding takes place via the hoarding of liquid assets. Our findings are robust to the use of alternative measures for economic policy uncertainty and gender diversity and hold after addressing endogeneity concerns. As women are still significantly under‐represented on bank boards in most countries, these results argue for policies to promote gender diversity on bank boards as a means of limiting the detrimental effects of economic policy uncertainty.

A path to success: educational board diversity and its influence on MENA banks’ efficiency and stability

PurposeThis paper aims to examine how the diversity of educational levels within bank boards influences the efficiency and stability of banks operating in the Middle East and North Africa (MENA) region. Unlike previous studies, this analysis also investigates the role of board gender diversity in moderating the relationship between board educational level diversity and bank efficiency and financial stability in MENA.Design/methodology/approachIn this study, a sample of 77 banks in the MENA region spanning the years 2011 to 2018 is used. The relationship between the presence of highly educated directors on the board, bank efficiency and stability is assessed using the ordinary least squares method. Additionally, the authors use the Generalized Method of Moments technique to correct endogeneity problem.FindingsThis study establishes a positive association between the presence of directors with advanced educational backgrounds on bank boards and bank efficiency and stability. Furthermore, the inclusion of women on the board strengthens this relationship.Practical implicationsThese findings have important implications for policymakers and regulators in the MENA region, suggesting that promoting diversity policies that encourage the participation of highly educated directors on bank boards can contribute to enhanced efficiency and financial stability. Policymakers may also consider implementing quotas or guidelines to improve gender diversity in board appointments, thereby fostering bank performance in the region.Originality/valueThis study stands out for its innovation and distinctiveness, as it delves into the connection between board educational level diversity and bank efficiency in the MENA region. Notably, it surpasses previous research by investigating the moderating role of board gender diversity, thus offering valuable insights into the complex interplay between these two facets of board diversity. This contribution enriches the existing literature by providing novel perspectives on board composition dynamics and its influence on bank efficiency and stability.

Analysis of Corporate Governance Practices on Financial Performance of Foreign Banks in Kenya: A Case of Standard Chartered Bank

The study analysed the effects of corporate governance on the financial performance of foreign banks in Kenya. The specific objectives of this study were to: examine the effect of board size on financial performance of foreign banks in Kenya, to establish the effect of Chief Executive Officer duality on financial performance of foreign banks in Kenya and evaluate the effect of board composition on financial performance of foreign banks in Kenya. The main theories for this study were the agency theory and stewardship theory. Descriptive design was used by the study. Stratified sampling was employed as the sample method in the study. A total of 176 participants was analyzed in this investigation, and the sample size consisted of 122 participants. The research methodology primarily relied on gathering data through primary research. A well-designed questionnaire was used to collect information from the target audience. Data was cleaned, coded and analyzed. The study made use of both descriptive and inferential statistics. Findings indicated a positive and significant association between board size and financial performance of foreign banks in Kenya (β =0.233, p < 0.05). There was a positive and significant relationship between Chief Executive Officer duality and financial performance of foreign banks in Kenya (β =0.371, p < 0.05). The link between board composition on financial performance of foreign banks in Kenya was positive and significant (β =0.451, p < 0.05). The study concludes that effective communication between the board of directors and the executive management team is vital for a company's financial performance. The size of a board of directors can directly affect how decisions are made within the organization. Skills, knowledge and experience of board members are foundational to their ability to effectively oversee the organization's operations and strategic direction. The study recommends that foreign banks in Kenya should ensure the right number of people who serve on the board of directors. The banks should have a policy on Chief Executive Officer duality as it helps enhance the financial performance. It is recommended that foreign banks board members should possess the right skills, knowledge and experience that would help to effectively oversee the organizations’ operations and strategic direction.

Corporate Governance, Liquidity Risk, and Sustainable Growth Rate in the Nigerian Banking Industry

Purpose: The objective of this study was to investigate the impact of board independence, liquidity risk management, and other bank-specific factors on the sustainable growth rate of banks in a developing country. Theoretical framework: The study relied on two major theories: the Agency Theory, which explored the conflicts of interest between owners and managers, and the Resources-based View Theory (RBV), which examined how banks utilised unique resources to achieve competitive advantages and sustain growth. Design/methodology/approach: The study analysed panel data from twelve banks listed on the Nigerian Stock Exchange from 2008 to 2021. This study utilised the Feasible Generalised Least Squares (FGLS) regression technique, chosen for its effectiveness in addressing serial correlation and heteroskedasticity, to examine the effect of various factors on the sustainable growth rate. Findings: The study found that the sustainable growth rate (SGR) of banks was significantly affected by the interaction between corporate governance variables and factors such as liquidity risk, dividend payout ratio, bank size, asset quality, and operating margin. Additionally, board independence and bank performance may not be enough to ensure a bank’s resilience in volatile conditions. Research, Practical & Social implications: The study illuminated previously neglected factors that affect the sustainable growth rate of banks. Bank boards and policymakers can utilise these insights to enhance governance structures, risk management practices, and regulatory frameworks. This enhanced comprehension can contribute to a more stable financial system, improving public confidence and economic stability. Originality/value: This study addresses a notable research gap by examining the influence of board independence and bank-specific factors on the sustainable growth rate of banks. Prior research has predominantly focused on the non-financial services industry, leaving this area understudied.

Boardroom diversity (task- and relation-oriented diversity) and financial stability: evidence from Chinese financial listed firms

PurposeThis study aims to examine the impact of boardroom diversity on the financial stability of Chinese financial listed firms. Boardroom diversity is quantified in the following aspects: relation-oriented diversity and task-oriented diversity.Design/methodology/approachPanel data on Chinese financial listed firms between 1998 and 2017 are used in this study. Panel regression is used to analyze the firm data for fixed effects and robust standard errors.FindingsTask-oriented diversity of the board increases financial stability. Regarding the impact of boardroom diversity on firm risk, the results reveal that task-oriented diversity of the board reduces firm risk, which supports the predictions of this research. Regarding the moderating effect of state ownership on the relationship between boardroom diversity (task- and relation-oriented diversity) and financial stability, the results show that state ownership enhances the positive impact of the board’s task-oriented diversity on financial stability.Practical implicationsTask-oriented diversity of the board enhances the financial stability of Chinese financial listed firms. As existing studies on bank boards in China are limited, the findings of this research can be used when crafting policy initiatives to enhance financial stability.Originality/valueTo the best of the authors’ knowledge, this study is the first to examine the effect of boardroom diversity, particularly task- and relation-oriented diversity, on financial stability. It provides empirical support that boardroom diversity positively affects the financial stability of Chinese financial listed firms. This research also offers empirical evidence that state ownership enhances the positive impact of the board’s task-oriented diversity on financial stability.

Environmental, social and governance controversies: the role of European bank boards

PurposeIn recent years, European banks have been required to integrate environmental and social objectives into their business practices. At the same time, they have become increasingly exposed to environmental, social and governance (ESG) controversies. This paper empirically examines the relationship between the board characteristics of banks (i.e. size, gender diversity, meeting frequency, sustainability compensation incentives and the presence of a sustainability committee) and exposure to ESG-related controversies.Design/methodology/approachThe empirical analysis focuses on a sample of 61 European banks between 2012 and 2021. Employing generalized method of moments (GMM) estimation, the authors examine the relationship between board characteristics and ESG controversies.FindingsThe results of the study indicate that banks featuring certain board characteristics (i.e. larger and more gender-diverse boards, facing sustainability compensation provisions and having sustainability committees) experience lesser exposure to ESG controversies. Additionally, the authors ascertain that prior instances of ESG controversies play a role in influencing current levels of such controversies. This result highlights the relevance of a bank's historical trajectory.Research limitations/implicationsThe authors' sample contains banks based in the European Union (EU). Future research should broaden the analysis to encompass banks operating in other advanced countries, as well as in emerging countries. This expansion would offer more insights into the relationship between board characteristics and ESG controversies under different regulatory frameworks.Practical implicationsThe authors' findings provide relevant implications for several stakeholders, including shareholders, regulators and supervisors. Certain board characteristics should be taken into consideration to limit exposure to ESG controversies.Originality/valueTo the best of the authors' knowledge, this paper represents the first attempt to provide evidence of the link between strong corporate governance standards and reduced exposure to ESG controversies.

Responsibility of the bank's board of directors within the framework of the credit policy

يعد مجلس الإدارة المسؤول الأول عن صناعة السياسة الائتمانية التي على ضوئها يمنح المصرف التسهيلات الائتمانية للعميل، والتي يجب على أساسها أن يراعي مجلس الإدارة عند وضعه للسياسة الائتمانية أو تنفيذها تعليمات وتوجيهات الهيئة العامة للمصرف هذا من جانب، ومن جانب آخر يجب أن يلتزم مجلس الإدارة بالقوانين المصرفية والأنظمة والتعليمات والضوابط الصادرة عن البنك المركزي فيما يتعلق بوضع السياسة الائتمانية وتنفيذها وإلا عُد المجلس مسؤولا تجاه المصرف أو المساهمين أو الغير، لكن لابد وأن يلاحظ بأن مسؤولية مجلس الإدارة لا تقوم على أساس المسؤولية الموضوعية، ذلك لأن الوظيفة الائتمانية التي يقوم بها مجلس ادارة المصرف محاطة بالمخاطر، وهذه المخاطر تدخل في صميم العملية الائتمانية، كما أنها لا تقتصر على المخاطر التي تعود إلى مجلس الإدارة راسم السياسة الائتمانية وصانع القرار الائتماني، إنما هذه المخاطر تتعلق بجل عناصر السياسة الائتمانية، وعليه فلا يمكن أن يتحمل مجلس الإدارة نتائج هذه المخاطر كلها، وإلزامه بتعويض الاضرار المرتبطة بها، ومن ثم فإن تأسيس مسؤولية مجلس ادارة المصرف قبل المصرف والمساهمين على اساس المسؤولية الموضوعية يجعل منها نتيجة حتمية لنشاطاته، وما ينجم عن ذلك من تردد مجلس الإدارة قبل اصداره للقرار الائتماني بمنح التسهيلات للعملاء خوفا من ترتيب المسؤولية عليه، ومن ثم يشترط لقيام مسؤولية مجلس الإدارة توافر عناصر المسؤولية المدنية من خطأ وضرر ورابطة السببية. والأثر المترتب على توافر هذه العناصر هو تعويض المتضرر عما أصابه من ضرر جراء إخلال مجلس الإدارة في إطار السياسة الائتمانية.

Women in Corporate Governance in Banking: A Bibliometric Analysis

Abstract: 
 The vital players on the financial market in developing countries, banks, need strong corporate governance to ensure better performance and stability. This is the first study that investigates the impact of women in corporate governance in the banking industry and identifies research hotspots. The focus is on journal-published papers indexed in the Web of Science (WoS) database. Descriptive analytics is used to show how papers are distributed in the observed period as well as by publisher, category in the WoS, and the most cited authors and papers. Content analysis is used to examine how women impact corporate governance in the banking industry. By mining the abstracts, research hotspots are identified for the entire examined period and for the last five years. In the last five years, 70.4% of papers have been published, indicating that researchers' interest in this area is growing. Emerald Publishing Group LTD is the top publisher, while the most cited authors are Berger, A.N., Kick, T., and Schaeck, K. The keywords "approach, responsibility, difference, institution, commitment, financial performance, and risk" were the most frequently used in the whole analyzed period, while in the last five years, the most commonly used keyword is "value". The positive impact of women in corporate governance prevails, especially on CRS disclosure data, bank performance, stability, and value. Our findings may serve as a starting point for further research for academics, researchers, and banking professionals, as well as for shareholders and regulatory bodies when composing the bank boards.

Does gender diversity improve CSR reporting? Evidence from the Central and West Balkan banking sector

This study aims to investigate the effect of gender diversity in board of directors in banks on environmental, economic, social, and governance (CSR) reporting. The sample comprises 85 banks operating in the Central and West Balkan region. Research results suggest that gender diversity in a two-tier board system in bank boards does not affect CSR reporting as measured by the constructed EESG index with statistical significance. However, taking into consideration specific elements of this index, we found that gender diversity on the supervisory board had a positive effect on variables that compose this index. This is the first study to provide insight into gender and the CSR reporting nexus in the Central and West Balkan region. This study contributes to the discussions on those issues in a global scale and in terms of the banking sector in particular.

Market value and related party's transactions: a panel data approach

PurposeThis research aims to examine the impact of RPTs and board of directors' characteristics on the market value of Indian listed banks. Further, this study evaluates the moderation effect of board composition on the association between RPTs banks’ market value.Design/methodology/approachThe sample size consists of 38 banks listed on Bombay stock exchange. The current study is based on secondary data for ten years from 2010 to 2019. Generalized Method of Moment (GMM) was used for estimating the results.FindingsSubsidiary transactions, board of directors' size, composition, diligence, promoters, remuneration and banks' size and leverage have a significant impact on the market value of Indian listed banks. Further, board of directors' composition positively moderates the association between RPTs and banks value measured by Tobin's. Furthermore, corporate governance characteristics have a significant impact on RPTs measured by total RPTs and all subsidiary transactions.Research limitations/implicationsThis research is limited only to listed banks whose data are available in the ProwessIQ database, which makes it difficult to generalize the findings on other unlisted banks. This research helps policymakers, investors and creditors to categorize RPTs into different groups to identify the harmful and beneficial once to the bank. The findings suggest that policymakers, investors and creditors should not consider all key personal transactions as harmful transactions; instead, the policymakers, investors and creditors should consider all subsidiary transactions as harmful in the absence of independent directors.Originality/valueThe present study contributes to the existing literature on RPTs by evaluating the interaction effect of board composition on the association between related party transactions and banks' value. Further, this research focuses on the financing industry; Indian banks, which has not been sufficiently researched in comparison to the non-financing industries.