Do all new brooms sweep clean? Evidence for outside bank appointments

Thomas Kick*, Inge Nehring, Andrea Schertler

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

Banks in bad financial shape are more likely to appoint executive directors from the outside than those in good shape. It is, however, not clear whether all of these appointments necessarily lead to the desired turnaround. We analyze the performance effects of new board members with external boardroom experience (outsiders) by distinguishing between good and bad managerial abilities of executives based on either ROA or risk-return efficiency of their previous employers. Our results show that banks appointing bad outsiders underperform other banks while those appointing good outsiders do so to a lesser extent. The performance differentials are highly pronounced in high-risk banks and in the post-crisis period. (C) 2017 Elsevier B.V. All rights reserved.

Original languageEnglish
Pages (from-to)135-151
Number of pages17
JournalJournal of Banking and Finance
Volume84
DOIs
Publication statusPublished - Nov-2017
Externally publishedYes

Keywords

  • Executive directors
  • Outside appointments
  • Bank performance
  • Managerial ability
  • CORPORATE GOVERNANCE
  • RISK-TAKING
  • FIRM PERFORMANCE
  • CEO TURNOVER
  • MANAGERIAL ABILITY
  • CREDIT CRISIS
  • BOARDS
  • DIRECTORS
  • MARKET
  • SUCCESSION

Cite this