Better than independent: the role of minority directors on bank boards

Thierno Barry (1) , Laetitia Lepetit (1) , Frank Strobel (2) , Thu Tran (1)

1 LAPE - Laboratoire d'Analyse et de Prospective Economique
2 University of Birmingham [Birmingham]

Using a panel of controlled European banks, we examine whether board structures that include directors that are related to minority shareholders can be an effective corporate governance mechanism to limit expropriation by controlling shareholders, without exacerbating risk. We find that the inclusion of such minority directors does indeed increase the effectiveness of bank boards, as it results in higher market valuations whereas the presence of independent directors does not, without increasing risk. Our results depend crucially on whether or not minority directors are related to "active" institutional investors, the extent of holdings of related shareholders, as well as the strength of the supervisory regime. To identify the relationship, we use as instrumental variable for the presence of minority directors the distance of minority shareholders from the headquarters of the bank.

Mots clés: Bank governance; minority directors; independent directors; market valuation; bank risk

Domaines: Sciences de l'Homme et Société; Economies et finances

Thierno Barry, Laetitia Lepetit, Frank Strobel, Thu Tran. Better than independent: the role of minority directors on bank boards. 2018. ⟨hal-01937927⟩