Does Diversity of Bank Board Members Affect Performance and Risk? Evidence from an Emerging Market

Abstract

This study investigates the influence of background diversity of bank board members on performance and risk. Using data from Indonesian banks from 2001 to 2011 covering 4200 individual year observations and 21 ethnic groups, we estimate the degree of diversity by considering various aspects (gender, citizenship, age, experience, tenure, ethnicity, nationality, education level and type) and find significant impacts on bank performance. On the whole, diversity is in general positively associated with performance except when it relates to ethnicity. It not only reduces performance per se but also increases risk. Female presence and professional diversity reduce risk but nationality and ethnicity diversities are associated with higher risk. Education diversity generally leads to higher income volatility and leverage risk. Our results are generally robust to various alternative performance measures, including risk adjusted returns, and estimation methods.

The Relationship Between Board of Directors’ Characteristics and Bank Risk-Taking: Evidence from Egyptian Banking Sector

“…It is found also significant positive with credit risk at the level 0.05, while it is negative significant with liquidity risk at the 0.10 level, accordingly, more female members will decrease both insolvency risk, liquidity risk and increase credit risk, therefore hypothesis 4 is partially accepted. The findings are consistent with the results of [11,47] who find a negative relation between gender diversity and risk-taking predicting that board females are risk averse. One explanation of having a positive correlation with credit risk is that the presence of women on boards doesn't hinder them from providing loans to their customers as loans is the core of bank business, beside the poor percentage of women existence in the board (on average 6.50%).…”

“…It is also found a positive significant relation with credit risk, while it is negative significant with liquidity risk, accordingly, more female members will decrease both insolvency risk, liquidity risk and increase credit risk. The findings are consistent with the studies that found a negative relation between gender diversity and risk-taking predicting that board females are risk averse [11,47]. Board members with a PhD degree has positive insignificant relation with the three measures of risks which is a contrast to the finding of [9], who find that better educated board members decrease portfolio risk, and with [20], who found higher education increase the bank risk-taking.…”

“…However, the studies concerning the relationship between board female and bank risk-taking are mixed, for example, [9], record a positive relationship, suggesting that female directors in banks have the tendency to take more risk than male directors and having females on the board not necessarily lead to more risk-averse decision-making. On the contrary, some other studies such as [11,47], find a negative correlation between gender diversity and risk-taking predicting that board females are risk averse. [47], find that the presences of female directors on the board decrease the company's bankruptcy probability.…”

Does Woman Director Matters in Performance and Risk? A Study in ASEAN Banking Firms

“…Due to the conservative nature of woman, woman director can correct bias in important decisions especially those related to strategic oversight and risk by thinking about problems and detailing solutions, so woman is often considered more conservative than men [31] [32]. Bellucci et al [33] and Beck et al [34] focus on the implications of gender differences in the banking context. Bellucci et al [33] found that woman credit employee avoid risk more than male credit employees and limit the availability of credit to new borrowers.…”

“…Bellucci et al [33] found that woman credit employee avoid risk more than male credit employees and limit the availability of credit to new borrowers. Beck et al [34] shows that loans handled by woman credit employee have significantly reduced the failure rate.…”