The Effect of Board Size and Composition on the Efficiency of UK Banks

We examine a sample of 18 banks operating in the UK between 2001 and 2006 to provide for the first time evidence on the association between the efficiency of UK banks and two important aspects of board structure, namely board size and composition. We first use data envelopment analysis to estimate the technical, allocative, and cost efficiency of banks, and then use Tobit regression to investigate the impact of the board structure on these measures of efficiency. We estimate three specifications, one for each measure of efficiency, where the impact of each board aspect is examined individually and in conjunction with each other. In all the specifications we control for bank size, capital strength and time trends. We find some evidence of a positive association between board size and efficiency which is however not robust across our estimations. The composition of the board has a statistically significant and positive impact on efficiency across all our specifications