Are Outside Directors with Greater Board Tenure Valuable? Evidence from the Last Credit Crisis

39 Pages Posted: 25 May 2009 Last revised: 5 Apr 2016

See all articles by Nuno Fernandes

Nuno Fernandes

University of Navarra, IESE Business School; European Corporate Governance Institute (ECGI)

Eliezer M. Fich

Drexel University - Department of Finance

Date Written: April 5, 2016

Abstract

Analyses of bank performance around the 2007-2008 financial crisis suggest that outside directors with financial experience acquired through longer board service at their own banks are more effective than those with financial experience attained elsewhere. Institutions with more long-tenured independent directors (i) earn higher CARs around the collapse of both Bear Stearns and Lehman Brothers, (ii) limit their risk exposure before the crisis, (iii) exhibit better stock return and accounting performance during the crisis, (iv) are less likely to be bailed out by the U.S. government’s Troubled Assets Relief Program (TARP), and (iv) receive proportionally less financial assistance from TARP.

Keywords: Financial expertise, Credit crisis, Bank returns, Moral hazard, Bailouts

JEL Classification: G21, H81, K23

Suggested Citation

Fernandes, Nuno and Fich, Eliezer M., Are Outside Directors with Greater Board Tenure Valuable? Evidence from the Last Credit Crisis (April 5, 2016). Available at SSRN: https://ssrn.com/abstract=1409557 or http://dx.doi.org/10.2139/ssrn.1409557

Nuno Fernandes (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

European Corporate Governance Institute (ECGI) ( email )

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

Eliezer M. Fich

Drexel University - Department of Finance ( email )

LeBow College of Business
3220 Market Street – 11th Floor
Philadelphia, PA 19104
(215) 895-2304 (Phone)

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