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Better than independent: the role of minority directors on bank boards

Author

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  • Thierno Barry

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Laetitia Lepetit

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Frank Strobel

    (University of Birmingham [Birmingham])

  • Thu Tran

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

Abstract
Using a panel of controlled European banks, we examine whether board structures that include directors that are related to minority shareholders can be an effective corporate governance mechanism to limit expropriation by controlling shareholders, without exacerbating risk. We find that the inclusion of such minority directors does indeed increase the effectiveness of bank boards, as it results in higher market valuations whereas the presence of independent directors does not, without increasing risk. Our results depend crucially on whether or not minority directors are related to "active" institutional investors, the extent of holdings of related shareholders, as well as the strength of the supervisory regime. To identify the relationship, we use as instrumental variable for the presence of minority directors the distance of minority shareholders from the headquarters of the bank.

Suggested Citation

  • Thierno Barry & Laetitia Lepetit & Frank Strobel & Thu Tran, 2018. "Better than independent: the role of minority directors on bank boards," Working Papers hal-01937927, HAL.
    • Handle: RePEc:hal:wpaper:hal-01937927
    Note: View the original document on HAL open archive server: https://unilim.hal.science/hal-01937927
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    References listed on IDEAS

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    Bank governance; minority directors; independent directors; market valuation; bank risk;
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