The impact of board of director characteristics on Farm Credit Association performance

Abstract

Purpose -The purpose of this paper is to identify how board size and board member compensation impact the operating performance of Farm Credit Associations. Cooperatives are a unique business structure that might not have profit maximization as a goal. Thus measures of performance other than return on equity are used to establish the link. Design/methodology/approach -The paper uses regression to explain the relationship between board characteristics and performance. Findings -The results of the models of return on assets and equity indicated that board size and compensation explain little of the variability in performance in these profitability measures. The results of the models of operating efficiencies explained a greater proportion of the variability in the operating efficiency and operating expenses-to-average assets ratios. In both models the relationship exhibited diminishing returns to board size and per member compensation.Research limitations/implications -The data are based on just one year of performance, limiting the generalizability of the results. Practical implications -The paper includes implications for the size of boards of directors and director compensation. Originality/value -This paper fulfils an identified need to study the impacts of boards of directors for cooperatives.

The relationship between corporate governance, corporate characteristics and agricultural credit supply: evidence from Bangladesh

“…The various groups of people on the board become a value-maximizing board, which is likely to resolve the intimidations as it can reduce the riskiness of investments, as well as effectively maintain the channel of communication with the diverse group of stakeholders (Faleye and Krishnan, 2017). A similar line of study by Gunderson et al . (2009) also point out the effectiveness of board while they argued that a board consisting of an increasing number of decision-makers with diversified characteristics, can easily handle the impediment and improve the corporate performance, minimize the risks and inject the agricultural credit issues in the decision-making process for strategizing the grating of agro-capital.…”

On the relationship between financial and non-financial factors

“…Financial performance ratios and organizational survival has also been discussed at great length in the agricultural finance literature. For instance, Gunderson, Gloy and Rodgers (2009) show that board size and director compensation of U.S. Farm Credit Associations explain little of the variability in performance ratios such as return on equity (ROE) and return on assets (ROA).…”

Cooperative Governance and Cooperative Performance: A Systematic Literature Review

“…Some studies have found a negative relationship between board size and asset utilization (Reddy & Locke, 2014), ROA (Franken & Cook, 2019; Reddy & Locke, 2014), ROE (Franken & Cook, 2019), overall performance (Franken & Cook, 2019), operating efficiency (Gunderson et al, 2009), operating expenses to earning assets ratio (Gunderson et al, 2009), and cost-efficiency (Yamori et al, 2017). Some studies suggest that board size may not be linked with ROA and ROE (Gunderson et al, 2009); profit efficiency (Yamori et al, 2017); net interest income, return on loans, cost of funds, and total operating cost (Ghosh & Ansari, 2018); extra-value index (Franken & Cook, 2019); and net premium written, expense ratio, and profit margin (Hemrit, 2020). However, Hakelius (2018) reports that board size has a positive effect on cooperative performance.…”

“…This result underscores the importance of the cooperative concept appreciation to the core and the appointment of a competent cooperative member as the CEO of a cooperative. The relationship between cooperative board characteristics and performance has been investigated mainly in cooperatives in the fields of agriculture (e.g., Gunderson et al, 2009;J. Rebelo et al, 2011) and financial/insurance (e.g., Ghosh, 2018;Yamori et al, 2017).…”