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Supervisory boards, financial crisis and bank performance: do board characteristics matter?

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Abstract

Failures in governance, especially in regard to boards of directors, have been blamed for the 2007–2008 financial crisis. The increased public scrutiny regarding the actions and role of the board of directors in banks, following the crisis, inspires to examine whether and to what extent the characteristics of banks’ boards influence their performance in the crisis. Using a sample of 72 publicly listed European banks, we find that banks with more independent and busy boards experienced worse stock returns during the crisis. Conversely, the better-performing banks had more banking experts serving as supervisory directors. Additionally, we find that gender and age diversity improved banks’ performance during the crisis; hence, diversity matters. We also construct a governance quality index on the basis of board characteristics and conclude that governance quality positively affects banks’ returns during the crisis. Overall, we find evidence that banks’ performance during the financial crisis is a function of their boards’ characteristics.

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Authors and Affiliations

  1. Polytechnic Institute of Bragança, Bragança, Portugal

    Catarina Fernandes

  2. Cef.up - Center for Economics and Finance at University of Porto, Porto, Portugal

    Catarina Fernandes & Jorge Farinha

  3. Faculty of Economics, University of Porto, Porto, Portugal

    Jorge Farinha & Francisco Vitorino Martins

  4. Faculty of Business, University of Greenwich, London, UK

    Cesario Mateus

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  1. Catarina Fernandes
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  2. Jorge Farinha
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  3. Francisco Vitorino Martins
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Correspondence to Cesario Mateus.

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Fernandes, C., Farinha, J., Martins, F.V. et al. Supervisory boards, financial crisis and bank performance: do board characteristics matter?. J Bank Regul 18, 310–337 (2017). https://doi.org/10.1057/s41261-016-0037-5

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