Board busyness, performance and financial stability: Does bank type matter?

Vu Quang Trinh, Marwa Elnahass, Aly Salama, Marwan Izzeldin

Research output: Contribution to journalArticle

Abstract

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.
LanguageEnglish
Number of pages28
JournalEuropean Journal of Finance
Early online date4 Jul 2019
DOIs
Publication statusE-pub ahead of print - 4 Jul 2019
Externally publishedYes

Fingerprint

Financial stability
Board performance
Islamic financial institutions
Profitability
Income
Costs
Monitoring
Bank performance
Bank stability
Multiple directorships
Uniqueness
Outside directors
Liquidity risk
Assets
Operational risk
Financial products
Resource utilization
Insolvency risk
Governance structure
Decision making

Cite this

@article{a3b39e671c30471d93417074145d2515,
title = "Board busyness, performance and financial stability: Does bank type matter?",
abstract = "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.",
keywords = "Busy boards, Financial performance, Bank risk, Bank type",
author = "Trinh, {Vu Quang} and Marwa Elnahass and Aly Salama and Marwan Izzeldin",
year = "2019",
month = "7",
day = "4",
doi = "10.1080/1351847X.2019.1636842",
language = "English",
journal = "European Journal of Finance",
issn = "1351-847X",
publisher = "Routledge",

}

Board busyness, performance and financial stability : Does bank type matter? / Trinh, Vu Quang; Elnahass, Marwa; Salama, Aly; Izzeldin, Marwan.

In: European Journal of Finance, 04.07.2019.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Board busyness, performance and financial stability

T2 - European Journal of Finance

AU - Trinh, Vu Quang

AU - Elnahass, Marwa

AU - Salama, Aly

AU - Izzeldin, Marwan

PY - 2019/7/4

Y1 - 2019/7/4

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

UR - http://www.scopus.com/inward/record.url?scp=85068590817&partnerID=8YFLogxK

U2 - 10.1080/1351847X.2019.1636842

DO - 10.1080/1351847X.2019.1636842

M3 - Article

JO - European Journal of Finance

JF - European Journal of Finance

SN - 1351-847X

ER -