Board Structure and Banking Firm Performance

Abstract

We examine the relation between board structure (size and composition) and firm performance using a sample of banking firms during 1959-1999. Contrary to the evidence for non-financial firms, we find that banking firms with larger boards do not underperform their peers in terms of Tobin's Q. We argue that M&A activity and features of the bank holding company organizational form may make a larger board more desirable for these firms and document that board size is significantly related to characteristics of our sample firms' structures. Even after accounting for these potential sources of endogeneity, we do not find a negative relationship between board size and Tobin's Q. Our findings suggest that constraints on board size in the banking industry may be counter-productive.