The Effect of Board Size and Composition on the Efficiency of UK Banks

Abstract

We examine a sample of 17 banking institutions operating in the UK between 2001 and 2006 to provide empirical evidence on the association between the efficiency of UK banks and board structure, namely board size and composition. Our approach is to use data envelopment analysis to estimate several measures of the efficiency of banks, and then to use panel data regressions for investigating the impact of board structure on efficiency. After controlling for bank size and capital strength, we find some evidence of a positive association between board size and efficiency, although this is not robust across all our specifications. Board composition, by contrast, has a robustly significant and positive impact on all measures of efficiency. © 2011 Copyright International Journal of the Economics of Business

The effect of Corporate Governance Information (CGI) on banks’ reporting performance

“…Size of the board has a negative relation to profitability during the crisis period, at 1% significance level, reflecting that smaller board size tends to run banks more efficiently. These results are similar to those reported in previous studies of the banking sector (see, e.g., Busta, 2007;Staikouras et al, 2007;Tanna et al, 2008). Boards' independence strongly supports banks' efficiency at 1% significance level, while banks' CEOs as Head of board contribute positively to banks' efficiency at 5% significance level, similar to John and Senbet (1998) concluding that the board of director's effectiveness in monitoring corporate management is fundamentally determined by its independence and size.…”

The Effect of Corporate Governance on the Performance of US Investment Banks

“…Empirical evidence shows that an increase in the number of independent directors has a positive impact on the performance, in terms of return on invested capital and market‐to‐book values, for a sample of European banks (Busta, ). Moreover, Tanna et al () examine the impact of the board independence on the performance, as estimated by various efficiency measures, of seventeen banking institutions in the UK. They conclude that there exists a positive and significant relationship between the board independence and bank efficiency over the period 2001–2006.…”

“…In particular, we account for three board characteristics, namely board size, board composition and gender diversity. The first two variables have been used extensively in the corporate governance literature (Staikouras et al., ; Busta, ; Adams and Mehran, ; Andres and Vallelado, ; Tanna et al., ). Board size is the number of members that constitutes the board, while board composition refers to the proportion of independent members in the board.…”

Assessing efficiency profiles of UK commercial banks: a DEA analysis with regression-based feedback

“…The first category consists of single country focused studies and covers US Banks (Rangan et al 1988;Ferrier and Lovell 1990;Mehdian 1990, 1992;Aly et al 1990;Yue 1992;Miller and Noulas 1996;Kwon and Lee 2015), UK Banks (Drake 2001;Webb 2003;Webb et al 2010;Tanna et al 2011), Italian Banks (Favero and Papi 1995), Turkish Banks (Zaim 1995;Kutlar et al 2017), Japanese Banks (Fukuyama 1993;Liu and Tone 2008), Taiwanese Banks (Chen 1998;Liu 2018), Hong Kong Banks (Drake et al 2006), Singaporean Banks (Chu and Lim 1998), Indian Banks (Bhattacharyya et al 1997), Mozambique Banks (Wanke et al 2016), and Korean Banks (Lee et al 2017). The second category consists of multi-country focused studies and covers banks in several countries such as US, Australian, New Zealand, Austrian, Spanish, German, UK, Italian, Belgian, French, Danish, Luxembourg, Dutch, and Portuguese Banks (e.g., Pastor et al 1997;Pastor 2002;Lozano-Vivas et al 2002;Casu and Molyneux 2003;Pasiouras 2008;Avkiran 2009).…”

“…To conclude this section, it is worthy to mention that single country focused studies on banks using static DEA analyses (Drake 2001;Webb 2003;Webb et al 2010;Tanna et al 2011) focused exclusively on the few largest commercial banks in the UK, whereas this paper considers the whole UK commercial banking sector. We also would like to point out that other DEA methodologies have been used to assess the efficiency of banks; for example, Network DEA (e.g., Matthews 2013; Grigoroudis et al 2013;Akther et al 2013;Fukuyama and Matousek 2017;Gulati and Kumar 2017), Network DEA with undesirable variables (e.g., An et al 2015;Liu et al 2015), Dynamic DEA (e.g., Avkiran and Goto 2011;Fukuyama andWeber 2015, 2017), Dynamic Network DEA (e.g., Avkiran 2015;Chao et al 2015;Fukuyama andWeber 2015, 2017;Zha et al 2016;Wu et al 2016;Fukuyama and Weber 2017b), Fuzzy DEA (e.g., Wang et al 2014;Wanke et al 2016;Hatami-Marbini et al 2017), DEA with Bootstrapping (e.g., Ferrier and Hirschberg 1997), Fuzzy DEA with Bootstrapping (e.g., Wanke et al 2016), and Stochastic DEA (e.g., Kao and Liu 2009).…”