Do Board Characteristics Affect Bank Performance? Evidence from the Eurozone
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ORIGINAL ARTICLE
Do Board Characteristics Affect Bank Performance? Evidence from the Eurozone Ahmed Bouteska1 Revised: 30 May 2020 / Published online: 16 August 2020 © Springer Nature Limited 2020
Abstract This study analyzed the effect of board structure characteristics on bank performance. Over a sample of 50 banks in five Eurozone countries, including the UK, Germany, France, Italy, and Spain, during the period 2000–2019, our empirical evidence has suggested that most board characteristics increase bank performance, while the separation of the roles of CEO and chairman inhibits it. By using fixed effects and random effects regressions, as well as a pooled OLS panel data estimation, we have found that a board size of between 7 and 10 has a significant impact on bank performance. In addition to board size, we have also found that board independence has a positive and significant impact on bank performance. Furthermore, results have shown that the number of board meetings and financial experts plays an important role on bank performance. In contrast, there is no considerable increase in bank performance when the role of CEO and chairman is separated. Keywords Corporate governance · Board structure · Eurozone · Bank performance JEL Classification G20 · G30 · M14 · M41
Introduction Enhancing corporate governance of banking organizations in Europe became the focus of attention in the aftermath of the 2007–2008 financial crisis. Indeed, the High-Level Group on Financial Supervision in the EU and the OECD concluded in 2009 that deficiencies in the functioning of corporate governance mechanisms played a role in the financial crisis along with economic and financial consequences (de Larosière Group, Report 2009). The Basel Committee on Banking Supervision (BCBS) reinforced the importance of good corporate governance practices in financial institutions for building trust and confidence among investors.1 Financial institutions, mainly banks, are especially concerned with corporate governance. In fact, banks are highly leveraged and any undue incidents can be avoided only through an effective corporate governance mechanism. Good corporate
governance promotes efficiency in monitoring and supervision. According to Barton et al. (2004), good corporate governance practice is a key element which attracts interest among investors to the point that they are even willing to pay a premium of 25% for a well-governed company. Europe is a bank-based economy. The banking sector plays a vital role in the economic growth of the Eurozone. Europe’s banking system is expected to remain the world’s largest in the next decade. Revenue of major European banks climbed to its highest level in 2018. However, in the previous decade, the Eurozone experienced a harsh period characterized by financial instability and deep recession. This was due to the multiple crises and their magnitude that the region witnessed. The first crisis was the international financial crisis that was triggered in 2008. The second was the sovereign debt crisis that start
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