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21-01-2022

Implications for Bank Risk when Directors are Related to Minority Shareholders

Authors: Thierno Amadou Barry, Laetitia Lepetit, Frank Strobel, Thu Ha Tran

Published in: Journal of Financial Services Research | Issue 3/2022

Abstract

We examine whether directors on a board who are related to minority shareholders have an effect on bank risk. We use a panel of European banks with a controlling shareholder over the period from 2003 to 2017 and find that these directors result in lower risk. Our results depend crucially on whether or not such directors have reputational concerns or financial expertise, and the level of shareholder protection; the observed decrease in risk does not depend on their position on the board or on the presence of controlling shareholders. To identify the relationship, we use a dynamic generalized method of moments.

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Spain has introduced a proportional voting system in 2000 that allows for a minority of shareholders to appoint directors in proportion to their equity stake in both listed and non-listed corporations. In Italy, the Corporate Governance Codes have recommended since 2005 that listed companies should reserve at least one seat on the board of directors to persons that are not appointed by controlling shareholders. See Gutiérrez and Sáez (2013) for further details.

Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.

For example, Kim et al. (2007) uses a similar threshold.

However, we were unable to ascertain who does in fact nominate particular directors.

In our sample, 43 directors had the same family name as one of the minority shareholders. Taking into account only directors with the same family name as minority shareholders when the name was not common in each country, we were left with 33 related directors according to this criterion. As a robustness test, we removed all these cases from the sample.

We alternatively used the radius method and the kernel or caliper approach to obtain similar results.

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Title: Implications for Bank Risk when Directors are Related to Minority Shareholders
Authors: Thierno Amadou Barry
Laetitia Lepetit
Frank Strobel
Thu Ha Tran
Publication date: 21-01-2022
Publisher: Springer US
Published in: Journal of Financial Services Research / Issue 3/2022
Print ISSN: 0920-8550
Electronic ISSN: 1573-0735
DOI: https://doi.org/10.1007/s10693-021-00371-y