The effect of board size and composition on bank efficiency

Agoraki, Maria-Eleni and Delis, Manthos D and Staikouras, Panagiotis (2009): The effect of board size and composition on bank efficiency.

Abstract

This paper analyzes the relationship between board structure, in terms of board size and composition, and bank performance. Unlike previous studies, the present analysis is carried out within a stochastic frontier framework. To this end, bank performance is proxied by both cost and profit efficiency, measures that present considerable advantages over simple accounting ratios. The empirical framework formed is applied to a panel of large European banks operating during the period 2002-2006. We find that board size negatively affects banks’ cost and profit efficiency, while the impact of board composition on profit efficiency is non-linear. Finally, introducing risk-taking (credit risk) as an interaction component of board size and composition does not affect the robustness of the results.

• Item Type: MPRA Paper
• Language: English
• Keywords: Corporate governance; Board size and composition; Bank cost and profit efficiency; Stochastic frontier analysis
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance; K - Law and Economics > K2 - Regulation and Business Law > K23 - Regulated Industries and Administrative Law; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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