Board composition and operational risk events of financial institutions

Wang, Tawei; Hsu, Carol

doi:10.1016/j.jbankfin.2013.01.027

Cited by 133 publications

(99 citation statements)

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“…Beltratti and Stulz (2012) focus on banks in 31 countries and document that large banks with lower leverage ratios have less negative stock returns during the crisis, but also that banks with strong boards perform worse over the period from July 2007 to December 2008 than other banks. Wang and Hsu (2013) investigate the relationship between board composition and operational risk events of 68 U.S. financial institutions in the period from 1996 to 2010. Their findings suggest that board size is negatively and non-linearly associated with the possibility of operational risk events.…”

Section: Corporate Governance and Bank Risk-taking During The Financimentioning

confidence: 99%

“…He finds that banks with strong governance attributes may take more risk. Although some studies document a positive association between board size and bank risk behaviour during the financial crisis period (Fortin, 2010;Minton et al, 2010;Adams, 2012; Peni and Vahamaa, 2012), other authors argue that the risk of financial firms vary inversely with the strength of corporate governance (Akhigbe and Martin, 2008;Beltratti and Stulz, 2012;Wang and Hsu, 2013;Faleye and Krishnan, 2015). Erkens et al (2012) and Berger et al (2014) (2012) and Wang and Hsu (2013) show that the presence of independent directors in negatively related to the risk behavior of financial institutions.…”

mentioning

confidence: 99%

“…Although some studies document a positive association between board size and bank risk behaviour during the financial crisis period (Fortin, 2010;Minton et al, 2010;Adams, 2012; Peni and Vahamaa, 2012), other authors argue that the risk of financial firms vary inversely with the strength of corporate governance (Akhigbe and Martin, 2008;Beltratti and Stulz, 2012;Wang and Hsu, 2013;Faleye and Krishnan, 2015). Erkens et al (2012) and Berger et al (2014) (2012) and Wang and Hsu (2013) show that the presence of independent directors in negatively related to the risk behavior of financial institutions.Since ownership structures may affect bank performance, both in terms of profitability and risk, a recent stream of research on bank risk-taking typically incorporates information on each bank's ownership structure. Also referring to that topic, the pre and post-crisis literature shows mixed results without offering a conclusive view (Gropp and Kohler, 2010;Beltratti and Stulz, 2012; Ellul and Yerramilli, 2012;Erkens et al, 2012; Berger et al, 2014).…”

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confidence: 99%

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Strong boards, ownership concentration and EU banks’ systemic risk-taking: Evidence from the financial crisis

Battaglia

Gallo

2017

Journal of International Financial Markets, Institutions and Mo

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This is the accepted version of the paper.This version of the publication may differ from the final published version. Keywords: board composition; bank ownership; systemic risk; financial crisis JEL classification: G01; G21; G32 Permanent repository link IntroductionCorresponding authorThe role of corporate governance in banking has been highlighted by academics as well as by regulators and policy makers (see e.g. Basle Committee on Banking Supervision, 2010;Organization for Economic Co-operation and Development, 2010). Many academic studies emphasize how flaws in bank governance played a key role in the performance of banks during the crisis (Diamond and Rajan, 2009;Bebchuk and Spamann, 2010, Beltratti andStulz, 2012). Since the 2007, an increasing number of proposals and initiatives have attempted to identify and mitigate these flaws revealed by the financial crisis (Kirkpatrick, 2009) aiming to promote better corporate governance standards in banking, while recognizing the special nature of banks when compared to other firms. On the other hand, the financial crisis revealed the dramatic impact of excessive risktaking behaviour of banks on the global financial stability, especially in terms of underestimated consequences of unregulated systemic risk-taking. As the literature has widely investigated poor or weak corporate governance as well as the increasing systemic nature of the banking sector as major causes of the crisis, to the best of our knowledge there is still a limited understanding of the relationship between corporate governance characteristics and banks' incentive to become more expose to systemic risk. As suggested by de Andres and Vallelado (2008), the aim of banking regulators to reduce the runs and their systemic consequences on the stability of the system might come into conflict with the main purpose of shareholders which is to improve the shareholders value by also increasing risk-taking. Taking on risks and tail and systemic risks, in particular, may enhance bank performance in the short run (i.e. by increasing the leverage), but it can cause significant damage to the institution and the whole system when such risks materialize (i.e. fire sales "effects"). During the global financial crisis, European banks exposed themselves to tail and systemic risks in various ways. Among others, the most recent literature has highlighted how European banks' exposures to tail risks in the form of shadow banking activities were later transformed into severe losses on the balance sheets (Acharya et al., 2013: Arteta et al., 2013).An increase in systemic and tail risks by large banks could be supported by the implicit too-big-to fail guarantee and the reduced market discipline (Acharya et al.,2010). In fact, it could be difficult, both for outsiders and insiders, to distinguish between risk-taking activities that generate high returns and those that offer high returns as compensation for taking tail risk through complex and opaque activities (Ellul and Yerramilli, 2013). In this context, the presence of a s...

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Section: Corporate Governance and Bank Risk-taking During The Financimentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

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Strong boards, ownership concentration and EU banks’ systemic risk-taking: Evidence from the financial crisis

Battaglia

Gallo

2017

Journal of International Financial Markets, Institutions and Mo

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“…The board of directors has the responsibility for setting corporate goals (Abdullah, 2004), establishing the business strategy (Nekhili & Gatfaoui, 2013), evaluating the appropriateness of the strategies and approaches (Abdullah, 2004), and overseeing and monitoring the actions of the management (Wang & Hsu, 2013). The board functions as a corporate governance mechanism through its appointment, supervision, and remuneration of senior managers, and its impact on overall strategies in firms (Campbell & Mínguez-Vera, 2008).…”

Section: Literature Reviewmentioning

confidence: 99%

“…In addition, independent directors may not have access to adequate and detailed information about the operations of entities. On the other hand, insider directors are considered to have access to a greater amount and better quality of organizational information relevant to strategic decisions (Wang & Hsu, 2013).…”

Section: Panel Data Analysismentioning

confidence: 99%

The Effect of Board Diversity on the Performance of Banks: Evidence from Turkey

Kılıç¹

2015

IJBM

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This study has primary two aims. The first is to determine the characteristics of boards of directors in the Turkish banking industry and the second is to investigate the effect of board diversity on performance of the banks. The analyses in this study are built on the banking industry of Turkey in the period from 2008 to 2012. The impact of the board diversity, as measured by the percentage of women and foreign directors on the board and the Blau index, on financial performance is investigated by conducting panel data analysis. The findings of the study provide evidence of a negative relationship between board diversity and financial performance. Hence, the findings do not support the economic case for board diversity, which implies that diverse directors will increase the financial performance of the banks. This study provides additional evidence to the sparse literature regarding the association between board diversity and financial performance in an emerging market context. Furthermore, most prior studies regarding the relationship between gender diversity and performance have excluded financial firms from their samples. In addition, there are few studies that examine the impact of foreign directors on the performance of banks.

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Nudging toward diversity in the boardroom: A systematic literature review of board diversity of financial institutions

et al. 2020

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Going beyond the mere gender diversity in the boardroom, this systematic review comprehensively covers the research on board diversity of financial institutions. More specifically, we cover gender diversity, as well as other characteristics of diversity, such as nationality, age, tenure, experience, education, ethnicity, and religion. A systematic literature review was employed using Scopus and Web of Science databases, covering all publications until May 2020, which resulted in 91 studies from 66 top‐ranked journals in accounting, finance, and economic fields. We analyze them based on the journal, methodology, research construct questions, and theoretical perspectives. Our results highlight the substantial knowledge gaps and the inconsistent findings of prior studies on several aspects of the field, suggesting avenues for further studies in terms of research designs, settings, scope, and theories. We argue that there is a need to explore other board diversity attributes rather than focusing on the gender diversity of the boards of financial institutions to achieve sustainable development. Also, more work is outlined on topics related to board diversity of financial firms that receive limited attention from scholars, such as (but not limited to) environmental performance, capital structure, intellectual capital, innovation and earnings quality of financial institutions, as well as the indirect effect of policy settings.

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Board composition and operational risk events of financial institutions

Cited by 133 publications

References 25 publications

Strong boards, ownership concentration and EU banks’ systemic risk-taking: Evidence from the financial crisis

Strong boards, ownership concentration and EU banks’ systemic risk-taking: Evidence from the financial crisis

The Effect of Board Diversity on the Performance of Banks: Evidence from Turkey

Nudging toward diversity in the boardroom: A systematic literature review of board diversity of financial institutions

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