Does Bank Institutional Setting Affect Board Effectiveness? Evidence from Cooperative and Joint‐Stock Banks

Abstract

Manuscript Type Empirical Research Question/Issue Do cooperative banks suffer from board deficiencies less frequently and severely than joint‐stock banks? To answer this question, we analyze banks operating in Italy during the period 2006–2012 to examine whether the governing bodies of cooperative banks are less effective in carrying out their duties than those of joint‐stock banks. Deficiencies in the governing body are measured by sanctions imposed by the supervisory authority. Research Findings/Insights Findings revealed that the boards of directors of cooperative banks were sanctioned more often than board of directors of joint‐stock banks. Furthermore, board turnover mediates the relationship between the cooperative status and board deficiencies. Theoretical/Academic Implications This study provides empirical evidence in support of the weakness of corporate governance in cooperative banks. Methodologically, our approach is novel in that we adopt a measure of board effectiveness/deficiency based on an independent third‐party perspective (supervisory authority) that is not biased by the different objective function of the two types of banks. Practitioner/Policy Implications The findings have several policy and managerial implications. We contribute to the ongoing debate on the proposal for flexible regulation of corporate governance for cooperative banks and emphasize that policy‐makers and regulators should rethink the corporate governance structures of cooperative banks. In particular, the study reveals how board turnover should be carefully monitored to reduce board deficiencies at the bank level.

Loan loss provisions and audit quality: Evidence from MENA Islamic and conventional banks

“…Furthermore, the mean values of Big-4, co-audit, and IAC in Islamic banks are higher than those of conventional banks, suggesting that conventional banks have a low level of audit quality. In addition, the descriptive statistic indicated that Islamic and conventional banks have a similar percentage of females, meeting frequency, and a similar number of the audit committee member, which is consistent with prior studies (D'Amato & Gallo, 2017;Inaam & Khamoussi, 2016). With Regards to other variables, they seem to be in reasonable ranges and aligns with previous studies (Mollah et al, 2017;Quttainah et al, 2013).…”

Bringing owners back on board: A review of the role of ownership type in board governance

“…On the one hand, scholars find that state‐owned sub‐Saharan firms (Munisi et al, 2014) and Western firms owned by the founder (Wu & Hsu, 2018), institutional investors (Appel et al, 2016; Hoskisson, Hitt, Johnson, & Grossman, 2002; Schnatterly & Johnson, 2014; Zahra, 1996), and VCs (e.g., Giovannini, 2010; Nahata, 2019; Roosenboom, 2005; Shekhar & Stapledon, 2007) have more independent boards. On the other hand, state‐owned Asian firms (Chen & Al‐Najjar, 2012; Ding, Jia, Wu, & Zhang, 2014; Mak & Li, 2001) and other Western firms controlled by founders (e.g., Daily & Dalton, 1992; Sur, Lvina, & Magnan, 2013), other corporations (Chauhan et al, 2016; Sur et al, 2013), institutional investors (e.g., D'Amato & Gallo, 2017; Schmidt & Fahlenbrach, 2017; Sundaramurthy, Rechner, & Wang, 1996), and VCs (Filatotchev, 2006) have less independent boards. Chauhan et al (2016), however, do not find any significant relationship between founder ownership and board independence in Indian firms.…”

Corporate governance, boards of directors, and firm performance: Avenues for future research

“…We see several areas of research that future studies may investigate. For example, we need to explore in more depth boards of directors in different type of organizations, like family business (Zattoni, Gnan, & Huse, ), cooperative banks (D'Amato & Gallo, ), credit unions (Guerrero, Lapalme, Herrbach, & Séguin, ), state‐owned companies (Kuzman, Talavera, & Bellos, ), and mixed ownership institutions (Ravasi & Zattoni, ). We may investigate which mediating and moderating variables affect boards of directors' ability to perform their tasks,e.g., the role of shareholders—especially large shareholders (Kumar & Zattoni, ; Shleifer & Vishny, )—and key stakeholders (Kumar & Zattoni, ) or of national business systems (Aslan & Kumar, ; Zattoni et al, ).…”