Corporate Governance in Banking: The Role of the Board of Directors

Posted: 17 Jun 2009

See all articles by Pablo de Andrés

Pablo de Andrés

Universidad Autonoma de Madrid; ECGI

Eleuterio Vallelado

University of Valladolid; University of Valladolid

Date Written: December 11, 2008

Abstract

We use a sample of large international commercial banks to test hypotheses on the dual role of boards of directors. We use a suitable econometric model (two step system estimator) to solve the well-known endogeneity problem in corporate governance literature, and demonstrate the empirical and theoretical superiority of system estimator over OLS and within estimators. We find an inverted U-shaped relation between bank performance and board size, and between the proportion of non-executive directors and performance. Our results show that bank board composition and size are related to directors' ability to monitor and advise management, and that larger and not excessively independent boards might prove more efficient in monitoring and advising functions, and create more value. All of these relations hold after we control for the measure of performance, the weight of the banking industry in each country, bank ownership, and regulatory and institutional differences.

Keywords: Corporate governance, Board of Directors, Commercial Banks, System Estimator

JEL Classification: G32

Suggested Citation

Andrés, Pablo de and Vallelado, Eleuterio, Corporate Governance in Banking: The Role of the Board of Directors (December 11, 2008). Journal of Banking and Finance, Vol. 32, No. 12, pp. 2570-2580, 2008 , Available at SSRN: https://ssrn.com/abstract=1314877

Pablo de Andrés (Contact Author)

Universidad Autonoma de Madrid ( email )

Campus de Cantoblanco
C/ Francisco Tomás y Valiente, 5
Madrid, Madrid 28049
Spain
+34 91 497 6527 (Phone)
+34 91 497 3954 (Fax)

HOME PAGE: http://www.uam.es

ECGI

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Eleuterio Vallelado

University of Valladolid ( email )

Avda. Valle Esgueva 6
47011 Valladolid, 47011
Spain
983423387 (Phone)
983186484 (Fax)

HOME PAGE: http://eleuteriovallelado.blogs.uva.es/

University of Valladolid ( email )

8 C/Plaza de Santa Cruz
Valladolid, Valladolid 47002
Spain
+34983423387 (Phone)

HOME PAGE: http://eleuteriovallelado.blogs.uva.es/

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