Bank Board Research Articles

Bank board changes in size and composition: Do they matter for investors?

AbstractResearch Question/IssueThis research seeks to explain whether changes in bank board size and/or composition signal the effectiveness of the board in terms of monitoring and advising.Research Findings/InsightsOur contribution provides empirical evidence on the negative reaction of investors to board changes, identifies the variables that explain this reaction, and finds that banks with experienced executive directors on their board are candidates to announce increases in board size. Our empirical analysis is based on 608 announcements by banks headquartered in 19 European countries over the period 2003–2015. We apply the Event Studies methodology, Heckman's analysis, system estimator regressions, and probit analysis.Theoretical/Academic ImplicationsOur results allow us to conclude that investors perceive changes in board composition as an ineffective response to bank problems, except when the changes increase the number of non‐executives. Bank shareholders positively value board changes when the bank has a powerful corporate executive officer and negatively value those banks with high dividends that announce these changes. Banks with higher interest margin and higher executive experience and seniority are more prone to make changes in board size and composition, while those with powerful corporate executive officers, executive directors distracted by their responsibilities on other boards, higher non‐executive attrition, where all non‐executives are male, with one‐tier boards, headquartered in a large country, or those delisting from stock markets will avoid changes in board size.Practitioner/Policy ImplicationsThis study offers insights to policy makers interested in enhancing banks' corporate governance. Boards should improve the information and transparency of their announcements to signal the effectiveness of board decisions. In addition, it provides insights about the influence of Board Chairs who hold the position of corporate executive officer in the design and effectiveness of banks' corporate governance.

Gender and Professional Networks on Bank Boards

<ns2:p>Women are underrepresented on bank boards. Using a newly compiled dataset of bank board membership over the 1999-2018 period, we find that within-board professional networks are extensive, but female board members are significantly less connected than male directors, both in number and length of connections. We also find that professional networks play an important role in determining the appointment of bank board directors. Connections also positively impact compensation for female directors, especially connections to other women. These results suggest that there are differences in the breadth, depth, and value of the professional networks of male and female board members and that these differences could be a contributing channel through which women's underrepresentation on boards prevails.</ns2:p>

Banking, Financial Services and Insurance Board (BFSIB) Webints Organized by The Institute of Cost Accountants of India (ICAI)

Banking, Financial Services and Insurance Board (BFSIB) Webints Organized by The Institute of Cost Accountants of India (ICAI)

Analisis Islamic Social Reporting pada Perbankan Syariah di Indonesia

This study aims to determine and analyze the effect of profitability, liquidity, company size and leverage on Islamic Social Reporting on Islamic commercial banks in Indonesia in the 2014-2018 period with the board of commissioners as a moderating variable. The main problem in this study is how much influence the profitability of the ISR is calculated through return on assets (ROA), namely the ratio between net income and total assets, liquidity to ISR calculated through the current ratio (CR), namely the ratio between current assets with current debt, the size of the company against ISR calculated by the natural logarithm of total assets, the effect of leverage on ISR calculated through the debt to assets rasio (DAR) and the board of commissioners as a moderating variable measured by the number of sharia board of commercial banks. The sampling technique using purposive sampling and obtained 7 company samples from a total of 14 population of Muamalat Indonesia Bank, BRI Syariah, BNI Syariah Bank, Mandiri Syariah Bank, Mega Syariah Bank, Syariah Bank Bukopin, BCA Syariah Bank. This type of research used in this study is quantitative. The data used in this study are secondary data in the form of finansial and annual reports. Data analysis techniques that researchers use are descriptive statistical analysis, classic assumption tests, Modereted Regression Analysis (MRA), partial hypothesis testing (t test), simultaneous hypothesis testing (f test), and coefficient of determination (R test). The R test of this study shows that the overall contribution of the independent variables, namely Profitability, Liquidity, Firm Size and Leverage to the dependent variable, namely ISR which is moderated by the Board of Commissioners variable is 70%, while 30% is determined by other variables not examined in this study. The F test of this study shows that simultaneously profitability, liquidity, firm size and leverage have a positive effect on ISR. The T test shows that profitability, liquidity, company size and leverage partially affect the ISR. The results of the moderation test are only liquidity and company size which are well moderated by the size of the board of commissioners in conducting ISR disclosures.

Stock price reactions to information about top managers

This article uses an event study to investigate the response of a bank’s stock price to information related to these banks’ top managers. In the first event, the Vice Chairman of the founding board of Asia Commercial Bank (ACB) was arrested and the Chief Executive Officer (CEO) of this bank was summoned by the police for questioning. The second event related to the immediate resignation of the Chairman of the Board of Directors of Sacombank (STB) after he received a summons from the investigating police agency. Both of these events happened in Vietnam. The research results showed that unanticipated events (the first event) caused the share prices of both banks to react more strongly, and the impact time was longer than the second event. The first event resulted in the cumulative abnormal returns of ACB and STB being –23.6% and –9.1%. The second event has been found to be directly related to STB, but does not significantly affect this stock, but has a significant effect on the abnormal return of ACB (AR (1) = –4.6%). Asymmetric information, inattention and investor fear of event-related losses may explain this phenomenon.

Independent board, gender diversity and bank performance in Nigeria: a system-GMM approach

PurposeThis study aims to examine the effects of board independence and gender diversity on bank performance in Nigeria.Design/methodology/approachThe two-step system-generalized method moment was used to estimate the effect of board independence and gender diversity on bank performance in Nigeria using annual data of 15 deposit money banks from 2006 to 2018.FindingsThe results revealed that gender diversity is a significant positive predictor of bank performance, whereas board independence is a negative predictor of bank performance in Nigeria.Practical implicationsDespite the significant positive relationship between gender diversity and bank performance, this paper does not recommend mandatory quota-based initiates of female representation on corporate boards because of the increasing number of female representations on corporate boards of banks in Nigeria.Originality/valueThe study contributes to corporate governance literature from developing country perspective and policy, particularly, on the relevance or otherwise of market-based measures in assessing bank performance in developing counties. This paper finds that market-based variables are not good measures of firm performance in economies with underdeveloped markets.

Review of Risks and Risk Management Systems in the Largest Islamic Banks of the Arabian Peninsula

<p><strong>Theoretical background:</strong> The specificity of Islamic principles, on the basis of which Islamic banking was created, as well as the nature of its financial instruments, means that Islamic banks may be exposed to greater risks than conventional banks.</p><p><strong>Purpose of the article:</strong> The aim of the article is to define key risks identified by Islamic banks and to define risk management systems in the 13 largest banks of the Arabian Peninsula region. The article analyses the annual reports submitted by the supervisory boards of the largest Islamic banks of the Arabian Peninsula for 2018, so that common elements in their risk management processes can be found.</p><p><strong>Research methods:</strong> Analyses of annual reports of the banks of the Arabian Peninsula region.</p><p><strong>Main findings:</strong> Supervisory boards of Islamic banks identify risks and implement strategies and risk management structures. The most important risks identified by banks are credit risk, liquidity risk, reputational risk, as well as operational risk, understood as the risk of direct or indirect loss, resulting from inadequate or faulty internal processes, errors of employees or systems and external events. Islamic banks may be exposed to increased credit risk, due to the application of the principle of profit and loss sharing (PLS), which is one of the pillars of Islamic finance. An analysis of the fiancial reports of the largest Islamic banks of the Arabian Peninsula shows that all supervisory boards are aware of the importance and role of an effective risk management system in reducing costs and increasing banks’ results. Most of them use the principles described by the Islamic Financial Services Board (IFSB). All banks have implemented appropriate risk management processes and policies, and have units in their structures responsible for the risk management process, which means that they apply the first IFSB principle. The institutions declare that they identify and monitor risks, and implement risk mitigation measures.</p>

Banks’ Corporate Governance: lessons learnt from the Great Financial Crisis

After acknowledging that one of the key factors that contributed to the Great Financial Crisis were the failures by banks in their Corporate Governance, standard-setting bodies have reinforced banks governance standards in order to reduce the shortcomings observed during the crisis. In March 2020, the Bank for International Settlement issued the paper “Bank Boards – a review of post-crisis Regulatory approaches” that, taking stock of specific aspects of the post-crisis Regulatory approaches used in 19 jurisdictions to strengthen Board oversight at banks, reviews the “Fitness and Propriety” assessment that these jurisdictions use to ensure that bank Board members are suitably qualified. Investigating the empirical evidence provided by scientific literature on the relationship among Corporate Governance and the profitability of the banks during the Great Financial Crisis, the results of this paper support some of the choices made by the Regulators to enhance the banks’ Corporate Governance in order to mitigate similar risks that banks could face subsequently.

The chemical brothers: Competition and the evolution of the board interlock network in the German chemical industry, 1950–2015

Utilising a unique and original dataset on the board composition of the 35 largest German chemical producers over the 1950–2015 period, the article tracks the entire lifespan of the industry’s reconstituted board interlock network. Regarding the network as a mechanism for controlling competition among its members, we consider changes in its strength over time. We find that a close-knit network came into existence in the 1950s, culminating in the 1970s and 1980s, after which it began to weaken. We highlight the importance of various meeting places for top-level directors from the chemical industry, including bank boards, and moreover introduce a novel measure that makes it possible to consider the significance of past ties to the strength of the network. Situating the findings in a wider political-economic context, we suggest that in important respects Germany’s coordinated form of capitalism is likely to have been even more coordinated than has been recognised.

Banking Governance Parameters Differentiated by size: Impact on Agency Cost

Large banks and small banks can impact agency costs differently. The current study considers a panel data of 30 Indian banks before the merger to reveal the relationship between agency cost and board composition using panel regression models. The agency cost is reflected in three measures: Asset turnover ratio, free cash flow and leverage ratio. Board composition is sub-divided into three groups: board structure, board independence and board diversity. The finding of the study for large banks shows that former CEO, number of employee representatives on board, independent chairperson, CEO duality, bank age and size impacts agency cost. On the other hand, for small banks, results prove that bank age, employee representative on board and CEO duality significantly affects agency cost. Therefore, in the current Indian context of banking merger and governmental directives to increase lending to micro, small and medium enterprises, the focus should be shifted more on increasing managerial productivity and increasing leverage. Hence, the emphasis should not be on increasing governmental representatives on the banking board but to enhance bank governance quality and its monitoring. To this end, the current article can potentially provide valuable insights for sustainable and real economic outcomes.

Better safe than sorry. Bank corporate governance, risk-taking, and performance

Conventional wisdom leads to assert that good governance may underpin bank performance while bad governance destroys stability and soundness. We run a factor analysis to synthesize 23 bank board characteristics of the Eurostoxx banks into seven key features: independence, size, dedication, tenure, corporate governance quality, external perspective, competence, and diversity. We then use multiple regression and find that independence and board and committees size are the most relevant characteristics for banks risk-taking and in line with the agency theory, our results show that independence increases the solvency of banks, and size reduces it.

Gender and Social Networks on Bank Boards

We examine the effect of the social networks of bank directors on board gender diversity and compensation using a unique, newly compiled dataset over the 1999-2018 period. We find that within-board social networks are extensive, but there are significant differences in the size and gender composition of social networks of male vs female bank directors. We also find that samegender networks play an important role in determining the gender composition of bank boards. Finally, we show that those connected to male directors receive higher compensation, but we find no evidence that connections to female directors are influential in determining pay and bonuses.

Islamic Banking Products, Services and Objectives: Perspectives of Shariah Supervisors and Regulators

The study is aimed at assessing the opinions of vital Islamic banking stakeholders including members of various Islamic banking Shariah Supervisory Boards (SSBs) and pertinent personnel from Pakistan’s central bank – The State Bank of Pakistan (SBP). The research analyzes the percepts of respondents regarding various aspects relevant to Islamic banking (IB) products, service and objectives. The paper employs qualitative research approach in analyzing the Shariah and regulatory experts’ viewpoints regarding Islamic banking. The study is conducted using semi-structured interviews of twelve Shariah supervisors and nine SBP staff members serving in the Islamic banking department and Islamic banking focus groups in the regional/field offices of the State Bank of Pakistan. The study is of pioneering nature involving qualitative research design and inclusion of two of the most significant stakeholder groups from the Islamic banking sector of Pakistan who have not been included in the past studies regarding Islamic banking perceptions. The research findings highlighted that Shariah objectives are top priority of Islamic banks as per the views expressed by members of Shariah boards of various banks while in opinion of Islamic banking regulators, Islamic banks’ major concern is to achieve their business objectives. Keywords: Islamic Banking, Islamic Finance, Pakistan, Products, Perceptions, Shariah Compliance.

Corporate Board Attributes, Bank Audit Quality, Bank Performance and Deposit Money Banks in Nigeria

Nigeria Deposit Money Banks (DMBs) are the life wires of the Nigerian economy as their contribution to the development and growth cannot be overemphasized; This paper examines corporate board attributes (CBR), bank audit quality (BAQ), and bank performance and DMBs with the aid of an ex-post facto design and sample of listed DMBs as at 2019. Descriptive and inferential statistics were employed in the analysis with the use of statistical packages for social sciences (SPSS, version 23.0). The study revealed that bank board size (BBS) has a negative but significant bank board composition (BBC) and Bank Chief Executive Officer Duality (CEOD) has a positive and significant impact on DMBs and concluded that the implications of CBR (BBC, BBS, and CEOD) are important indicators of BAQ in evaluating the performance of DMBs. One key recommendation was that the position of the CEO as the chairman of the board should be discouraged among DMBs, and the board size should be kept relatively large so as to reach board conclusions easily and fast, also, to enable and strengthen quality audit among DMBs. Keywords: Corporate Board, Audit Quality, Board Size, Board Composition, Chief, CEO Duality, performance, Deposit Money Banks DOI: 10.7176/RJFA/12-6-03 Publication date: March 31 st 2021

Impact of Corporate Governance on the Financial Performance of Tier-One Banks in Nigeria

Following the consolidation exercise in the banking sector in 2006 in Nigeria, Corporate Governance practices in the banking sector have received significant attention. The 2009 banking crisis underscores the need for financial regulators to take more than a cursory look at corporate governance practices in the sector. Previous studies on corporate governance and bank performance have mixed outcomes. Premise on this, this study examines the impact of corporate governance on the financial performance of tier-one banks in Nigeria. Corporate governance was operationalized using; board size, board composition, board (gender) diversity, and board meetings. While Return on Equity (ROE) and Return on Asset (ROA) were proxies for financial performance. The annual reports of five sampled banks over a period of ten years (2009-2018) were used to collect secondary data, while primary data was obtained via a survey of 115 respondents. Descriptive (Min., Max., Mean, Standard Deviation, Skewness and Kurtosis) and Inferential (Pearson Correlation, ANOVA, and Multiple Regression) statistical tools were used to measure the relationship between the corporate governance variables and financial performance. The study findings reveal that the four corporate governance mechanisms accounted for 9% and 15% of the variances in ROE and ROA respectively. Specifically, the results show that board size and board meetings have a negative but statistically significant relationship with financial performance. While board composition and board (gender) diversity show a positive relationship with performance, the relationship is not statistically significant with ROE and ROA for board composition. Though board (gender) diversity reveals a statistically significant relationship with only Return on Equity, the study recommends that stakeholders must ensure that bank board’s operate with the optimal board size, and also effort must be made to improve board composition and board (gender) diversity; as these will increase investors’ confidence and impact positively on the performance of the banks.

There and Back Again: A Commentary on Social Welfare Policy in the Wake of 2020

There and Back Again: A Commentary on Social Welfare Policy in the Wake of 2020

Shariah supervisory boards of Islamic banks in Bangladesh: expected duties and performed roles and functions

Purpose The main aim of this research is to ascertain the expected duties and performed roles and functions of the Shariah supervisory boards (SSBs) of Islamic banks in Bangladesh. Design/methodology/approach A semistructured face-to-face interview was applied to accomplish the research objectives. In total, data was collected from 17 respondents with a combination of regulators, SSBs, Shariah department executives and experts from the central bank and Islamic banks in Bangladesh. Findings This study finds that the expectations of Islamic banks toward SSB members are to provide opinions on Shariah issues, guidelines and decisions regarding the modern banking, practices and delivering of fatwas on the contemporary issues offered by the management to fulfill the demand of the numerous stakeholders. In addition, they can develop Shariah governance (SG) policies and implement those guidelines, approve and develop new products, observe and monitor banking functions, identify problems and outline solutions as well as they should ensure Shariah principles and compliance. The SSBs members perform roles and functions in monitoring and reviewing overall banking activities and functions; reviewing products, services and contracts; preparing SG guidelines; ensuring Shariah principles and compliance; providing opinions on existing SG practices and finally, delivering Shariah resolutions on the overall functions. Research limitations/implications This study significantly contributed to the national regulatory bodies by providing suggestions that the existing SG system should be improved to enhance the overall monitoring of SSB and ensure more Shariah compliance in the overall operations of the Islamic banks in Bangladesh. Originality/value This is the first research to the best of authors’ knowledge that explores the expected duties and performed roles and functions of the Islamic banks concerning Bangladesh. This study also contributes to the agency, legitimacy and stakeholder theories by outlining the expected and performed roles of SSBs to the Islamic banks and stakeholders.

The effect of independent directors' financial expertise on the use of private information in setting bank CEO bonuses

PurposeThe purpose of this study is to examine whether independent directors' financial expertise affects the use of private information in setting bank chief executive officer (CEO) bonuses.Design/methodology/approachThe association between future firm performance and bank CEO bonuses is used to measure the incorporation of private information into bonuses. Both level and change specifications are employed to test the effect of independent directors' financial expertise on the use of private information in setting CEO bonuses.FindingsIt is found that future firm performance is more positively associated with bank CEO bonuses for banks with a higher proportion of financial experts among independent directors than for other banks. The findings suggest that independent directors with financial expertise can more effectively use private information in setting bank CEO bonuses.Originality/valueResearch on independent directors' role in the use of private information in setting compensation is valuable for understanding how corporate governance can enhance the efficiency of CEO compensation contracts. This study indicates that financial experts on the bank board play an important role in this regard.

Independence and effectiveness of Shariah supervisory board of Islamic banks: evidence from an emerging economy

PurposeThe main objective of the study is to ascertain the level of independence and the effectiveness of the Shariah Supervisory Board (SSB) members of Islamic banks in Bangladesh. This is because only SSB members are empowered to oversee and certify the overall business functions of Islamic banks.Design/methodology/approachThis paper implements qualitative case research approach to explore the research objective in the context of Bangladesh. We applied purposeful and snowball sampling tactics for selecting respondents. By using a semi-structured questionnaire and face-to-face interviews, we collect data from SSB members, central bank executives and experts in Islamic banking and Shariah governance.FindingsThe study finds that majority Islamic banks' SSB's positions are similar to the Board of Directors (BOD) of the banks. Next, this study finds that in recruiting/selecting SSB members, some banks do not follow the guidelines of the central bank. This study finds mixed evidence regarding the independence of the members of the SSB. Most of the respondents opined that SSBs do not have power; in some cases, members of SSB are not independent and seeming powerless as BOD selects and recruits them. In contrast, they are dependent on management in respect of strategy implementation.Research limitations/implicationsThe study significantly contributed to the national and global regulatory bodies by identifying an important governance determinant of Islamic banks that is the independence of SSB members, which is highly important for both Shariah functions, and to enhance the trust level of the stakeholders. This study makes a theoretical contribution by documenting the violation of stakeholder theory and agency theory in recruiting SSB members by BOD's choice. The lack of SSB members' independence has an impact on Shariah legitimacy of the Islamic banks which is contradictory with the notion of legitimacy theory. This study recommends the central bank to ensure the independence of the SSB and central bank should take initiatives to develop an environment for the Islamic banking sector.Originality/valueThis study extends the literature of corporate governance relating to Islamic banking and financial institutions. More specifically, this paper explores the necessity of independence of members of the monitoring body (here SSB), an important constituent of governance, to ensure high-quality governance and transparency in reporting to increase diverse stakeholders' trust/confidence. The absence of independence of SSB in performing their functions contradicts with the agency, stakeholder and legitimacy theory, which is inconsistent with global evidence, that demands further investigations.

Gender diversity and bank misconduct

This paper investigates whether gender-diverse bank boards can play a role in preventing costly misconduct episodes. We exploit the fines received by European banks from US regulators to reduce endogeneity issues related to supervisory and governance mechanisms. We show that greater female representation significantly reduces the frequency of misconduct fines, equivalent to savings of $7.48 million per year. Female directors are more influential when they reach a critical mass and are supported by women in leadership roles. The mechanism through which gender diversity affects board effectiveness in preventing misconduct stems from the ethicality and risk aversion of the female directors, rather than their contribution to diversity. The findings are robust to alternative model specifications, proxies for gender diversity, reverse causality, country and bank controls, and sub-sample analyses.