The effect of board size and composition on bank efficiency Online publication date: Mon, 29-Nov-2010
by Maria-Eleni K. Agoraki, Manthos D. Delis, Panagiotis K. Staikouras
International Journal of Banking, Accounting and Finance (IJBAAF), Vol. 2, No. 4, 2010
Abstract: This paper analyses the relationship between board structure, in terms of board size and composition, and bank performance in terms of both cost and profit efficiency. Unlike previous studies, the present analysis is carried out within a stochastic frontier framework, while we use a suitable econometric model to solve the well-known endogeneity problem in corporate governance literature. The empirical framework is applied to a panel of large European banks operating during the period 2002-2008. The paper documents a negative correlation between board size, on the one hand, and cost and profit efficiency, on the other hand, while also casts doubt on the conventional regulatory wisdom favouring boards dominated by non-executive directors. Smaller board structures are also associated with better bank efficiency through better management of credit risk. Moreover, we find that dual board systems enhance efficiency, by contrast to increased ownership concentration which seems to exert an insignificant influence. Finally, we identify a positive impact of market discipline upon bank efficiency and report a negative association between bank efficiency and augmented supervisory power as well as foreign ownership.
Online publication date: Mon, 29-Nov-2010
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Banking, Accounting and Finance (IJBAAF):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email firstname.lastname@example.org