Supervisory Boards, Financial Crisis and Bank Performance : Does Board Characteristics Matter?

Failures in governance, especially concerning boards, have been blamed for the 2007-2008 financial crisis. The increased public scrutiny regarding the actions and role of the board of directors in banks, following the crisis, inspires to examine whether and to what extent do board's characteristics in banks influence their performance in the crisis. Using a sample of 72 publicly listed European banks we find that banks with more independent and busy boards experience worse stock returns during the crisis. Conversely, the better-performing banks had more banking experts serving as supervisory directors. Additionally, we find that gender and age diversity improve banks' performance during the crisis. So, diversity matters. Also, we construct a governance quality index on the basis of board characteristics and conclude that governance quality positively affects banks' returns during the crisis. Overall, we find evidence that banks' performance during the financial crisis is a function of their board's characteristics