SHAREHOLDER PROTECTION AND BANK BOARD QUALITY - AN INTERNATIONAL PERSPECTIVE

Download This Article

Abstract

This study analyzes the quality of banks’ boards of directors across Europe and the United States (US). We investigate the interactions between the legal protection of investors and ownership concentration to explain the quality of boards at 190 of the largest publicly-traded US and European banks in 2005, well before the unraveling of the financial crisis in 2008. Overall, our results show that in Europe, where legal protection of shareholders is lower than the US, the quality of boards is lower when ownership is more concentrated. Since there are lower expected costs of conflicts with minority shareholders in Europe, the controlling shareholders maximize their own interests by promoting a board of lower quality. In contrast, since there are higher expected costs of conflicts with minority shareholders in the US, the controlling shareholders promote a board of higher quality, thereby limiting their legal responsibility in case of conflicts. Thus, the quality of the board depends upon the interaction between institutional factors (investor protection) and firm-specific characteristics (ownership concentration).

Keywords: Board of Directors, Banks, Cross-Country, Investor Protection, Ownership Concentration

How to cite this paper: Grove, H., LVictoravich, L. M., & Xu, P. (2012). Shareholder protection and bank board quality - an international perspective. Corporate Ownership & Control, 9(4-4), 418-428. https://doi.org/10.22495/cocv9i4c4art5