Bank performance and risk-taking — Does directors' busyness matter?

Shawgat S. Kutubi, Kamran Ahmed, Hayat Khan

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper extends the literature on the association between bank performance and risk-taking with directors’ busyness in concentrated ownership and weak-external governance regimes. We argue that a quadratic model parsimoniously captures the tension between the ‘reputation hypothesis’ and ‘over-boarding hypothesis. We find a robust inverted u-shaped relationship between directors’ busyness and bank performance and a u-shaped relationship between directors’ busyness and bank risk-taking. Inside directors’ busyness has a significant effect on bank performance and risk-taking whereas independent directors’ busyness does not have a significant effect on performance and risk-taking. We calculate the optimal level of busyness where the reputation hypothesis dominates the over-boarding hypothesis at less than the optimal level of busyness and vice versa. This allows us to reconcile the mixed evidence in the literature on the relationship between busyness and performance/risk-taking.
    Original languageEnglish
    Pages (from-to)184-199
    Number of pages16
    JournalPacific Basin Finance Journal
    Volume50
    DOIs
    Publication statusPublished - Sept 2018

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