Rights statement: This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 04/07/2019 available online: https://www.tandfonline.com/doi/full/10.1080/1351847X.2019.1636842
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Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - Board busyness, performance and financial stability
T2 - does bank type matter?
AU - Trinh, Vu Quang
AU - Elnahass, Marwa
AU - Salama, Aly
AU - Izzeldin, Marwan
N1 - This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 04/07/2019 available online: https://www.tandfonline.com/doi/full/10.1080/1351847X.2019.1636842
PY - 2020/5/23
Y1 - 2020/5/23
N2 - This study examines the impact of board busyness (i.e. multiple directorships of outside board members) on the performance and financial stability of banks in a dual banking system (Islamic and conventional). We consider banks from 14 countries for the period 2010–2015. The results provide strong evidence that conventional banks with busy boards exhibit high bank performance (i.e. high profitability and low cost to income) and greater financial stability (i.e. low insolvency risk, credit risk, liquidity risk, asset risk, and operational risk). These findings are in line with the reputation hypothesis, which asserts that the expertise and connections of busy outside directors lead to better decision making, more efficient resource utilisation and more effective monitoring. In contrast, Islamic banks’ performance and stability are adversely affected by the presence of busy board members, with Islamic banks show low profitability, high cost to income and high risk-taking. This result might be attributed to the complex governance structure of Islamic banks and the uniqueness of their financial products, which require additional effective monitoring.
AB - This study examines the impact of board busyness (i.e. multiple directorships of outside board members) on the performance and financial stability of banks in a dual banking system (Islamic and conventional). We consider banks from 14 countries for the period 2010–2015. The results provide strong evidence that conventional banks with busy boards exhibit high bank performance (i.e. high profitability and low cost to income) and greater financial stability (i.e. low insolvency risk, credit risk, liquidity risk, asset risk, and operational risk). These findings are in line with the reputation hypothesis, which asserts that the expertise and connections of busy outside directors lead to better decision making, more efficient resource utilisation and more effective monitoring. In contrast, Islamic banks’ performance and stability are adversely affected by the presence of busy board members, with Islamic banks show low profitability, high cost to income and high risk-taking. This result might be attributed to the complex governance structure of Islamic banks and the uniqueness of their financial products, which require additional effective monitoring.
KW - Busy boards
KW - financial performance
KW - bank risk
KW - bank type
U2 - 10.1080/1351847X.2019.1636842
DO - 10.1080/1351847X.2019.1636842
M3 - Journal article
VL - 26
SP - 774
EP - 801
JO - European Journal of Finance
JF - European Journal of Finance
SN - 1351-847X
IS - 7-8
ER -