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Bank institutional setting and risk-taking: The missing role of directors’ education and turnover

Gallo, A. ORCID: 0000-0002-8355-1689 and D'Amato, A. (2019). Bank institutional setting and risk-taking: The missing role of directors’ education and turnover. Corporate Governance, doi: 10.1108/CG-01-2019-0013

Abstract

Purpose: This paper aims to analyze the relationship between bank institutional setting and risk-taking by exploring whether board education and turnover are drivers of the risk propensity of cooperative banks compared to jointstock
banks.

Design/methodology/approach: Based on a comprehensive dataset of Italian banks over the 2011-2017 period, we examine whether these board characteristics affect the risk propensity of cooperative and joint-stock banks. Bank risk is measured by the Zindex, profit volatility and the ratio of non-performing loans to total gross loans.

Findings: The findings show that cooperatives take less risk than joint-stock banks and have lower board turnover and education. Furthermore, we find that while board education mediates the relationship between the cooperative model and bank risk-taking, we do not find evidence of board turnover. Thus, the lower educational level of cooperative directors contributes to explaining the lower risk-taking of cooperative banks.

Implications: The findings have several implications. In terms of the more general policy debate, our results point to the need to strengthen the governance model for both joint-stock and cooperative banks while supporting the view that a more ad hoc perspective on the best models and practices for each type of institutional setting would be preferable. In particular, the study reveals how board education’s effects on bank risk-taking should be carefully monitored.

Originality/value: Through a mediation framework, this study provides empirical evidence on the relationship between bankinstitutional setting (by distinguishing between cooperative and joint-stock banks) and risk-taking behavior by exploring the underlying mechanisms at the board level, which is novel in the literature.

Publication Type: Article
Additional Information: This is the pre-peer reviewed version of the following article: Gallo, A. and D'Amato, A. (2019). Bank institutional setting and risk-taking: The missing role of directors’ education and turnover. Corporate Governance, which has been published in final form at https://onlinelibrary.wiley.com/journal/14678683. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
Publisher Keywords: Corporate Governance, Cooperative Banks, Bank Ownership, Board of Directors, Bank Risk.
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/22308
[img] Text - Accepted Version
This document is not freely accessible due to copyright restrictions.

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