The Relationship Between Board Characteristics And Bank Performance

The development of the banking industry plays a vital role in the development of the national economy.Meanwhile,China's banking industry is facing the challenges of narrowing deposit and loan spreads,shocks from Internet finance,financial openness,and growing strict supervision.Research on commercial bank governance not only improve and perfect the governance theory of the board of directors but also provides empirical support for bank governance reform and maintaining financial stability.Effective corporate governance is the cornerstone of the healthy and sustainable development of commercial banks.A well-governed board of directors can convey positive signals and establish a good public image to the outside world.It can also improve the performance and efficiency of the board of directors,motivate employees,and finally improve the bank's profitability and asset quality.At present,the research literature on board governance mostly excludes the financial industry from the sample,because the financial industry has special characteristics such as high leverage,information asymmetry,publicity,externality,and strict supervision compared with other industries.Whether the conclusions obtained by excluding financial industry are applicable to the banking industry remains to be verified.In addition,the research on the governance of the bank's board of directors mostly concentrates on the listed banks.The lack of breadth and depth of the sample size may affect the consistency and unbiasedness of the regression results.The relevant literature is scattered,lack of research on non-listed banks and results for banks with different characteristics.Therefore,this paper uses a combination of theoretical analysis and empirical analysis to study the relationship between board characteristics and bank performance.In the theoretical analysis,by systematically combing the domestic and foreign research literature on the relationship between the characteristics of the board of directors and the business performance,we deeply analyze the important characteristics of the board of directors such as the size of the board of directors,the proportion of independent directors,age diversity,female directors,CEO duality and political connections.In addition,this paper introduces six mainstream theoretical foundations of corporate governance: principal-agent theory,stewardship theory,resource dependence theory,stakeholder theory,rent-seeking theory,and social categorization theory.In the empirical analysis,data from 190 listed and non-listed banks from 2007 to 2017 are selected as sample,which enriches the existing literature and provides a clearer picture of bank governance.Explanatory variables are board characteristics variables such as board size,age diversification,female directors,independent directors,CEO duality and political connections.Explained variable are bank operating performance such as bank's profitability measured by return on assets and return on equity,and asset quality measured by non-performing loans ratio.The model is regressed by OLS,added time dummy variables to control the common impact brought by the market or regulatory environment,and the province dummy variables to control potential geographic economic location effects.Panel GMM estimates are followed for robustness testing.At the same time,in order to explore the impact of board characteristics on bank performance under different bank characteristics,the sample was divided into listed and unlisted banks,large and small banks.The results show that 1)political connection is positively related to bank profitability;board size,coefficient of variation of age,and proportion of senior directors over 60 years old are negatively correlated with profitability.2)Female directors and political connections are positively related to the asset quality,board size and young directors under the age of 40 are negatively correlated with asset quality.3)There is no significant correlation between independent directors and CEO duality and bank performance.4)the impact of board characteristics on performance differs between banks with different characteristics.The board of directors plays a stronger role in large banks and non-listed banks.The innovations of this paper: 1)Innovation in sample.This paper conducts empirical research on the unbalanced panel data of 190 listed and unlisted banks for ten years.No matter the number of sample sections or the time interval,it is rare compared with the existing literature,which helps to improve the unbiasedness of empirical research.2)Innovation in heterogeneity research.This paper finds that the impact of board characteristics on performance differs between banks with different characteristics.It can provide a reference for operators to choose their own corporate governance programs according to local conditions.