Do Independence and Financial Expertise of the Board Matter for Risk Taking and Performance?
Fisher College of Business Working Paper No. 2010-03-014
66 Pages Posted: 21 Aug 2010 Last revised: 14 Mar 2012
Date Written: June 20, 2011
During the recent financial crisis, financial expertise among independent directors of commercial banks is negatively related to changes in both firm value and cumulative stock returns. Furthermore, financial expertise is positively associated with risk-taking levels in the run-up to the crisis using both balance-sheet and market-based measures of risk. These results are not driven by powerful CEOs who select independent experts to rubber stamp strategies that satisfy their risk appetite. They are, however, consistent with independent directors with financial expertise recognizing the residual nature of shareholders’ claim and supporting a heightened risk profile for their bank.
Keywords: Governance, Risk Taking, Board Composition, Financial Expertise, Risk Management Committee
JEL Classification: G20, G21, G24, G32
Suggested Citation: Suggested Citation