XXV Edition

1-2 December 2016"

Ceo Directors on Banks’ Boards; Does Financial Expertise Matter?

Gilani Usman, University of Leeds
Keasey Kevin, University of Leeds
Vallascas Francesco, University of Leeds

Using the sample of 3423 directors’ appointments at 496 U.S. banks from 2000-2014, we analyze the determinants of appointment and performance of outside CEOs on bank boards. Consistent with our expertise hypothesis we show that irrespective of structural position, the probability of CEO director appointment, and their monitoring and advising quality on bank’s board is largely associated with their functional background. Financial sector CEO directors are more likely to appoint by banks with low profitability and high systemic risk, moreover, their appointment probability also increases during periods of financial distress and after changes in regulatory environment. Similarly, appointment announcement of financial sector CEO director has a higher stock price reaction than the appointment of any other director. Compared to non-financial sector CEO director, post appointment effect of financial sector CEO director on bank risk profile and profitability is positive. However, the presence of non-financial sector CEO director is associated with better monitoring in terms of bank CEO compensation.

Area: Banking

Keywords: banks' corproate governance, expertise, independent directors, directors structural position, functional background experience.

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