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Performance implications of board size, composition and activity: empirical evidence from the Indian banking sector

Performance implications of board size, composition and activity: empirical evidence from the... PurposeThe purpose of this paper is to examine the performance implications of board size, composition and frequency of board meetings on the performance of banks.Design/methodology/approachThe performance of banks is assessed on various parameters such as return on assets (ROA), Tobin’s Q, non-performing asset ratio (NPA ratio) and the net write-off ratio (NWO ratio). The effects of changes in board size and composition and frequency of meetings on the performance of banks are investigated using feasible generalized least square (FGLS) estimation of panel data covering a time span of five years concerning 40 banks incorporated in India. Frequency of board meetings is taken as a proxy for board activity and involvement. The authors have also tested for endogeneity issues in the model.FindingsA curvilinear relationship was found between the board size and performance of banks. The authors have modelled a cubic form of the relationship for Indian banks. The authors’ findings indicate that an increase in board size is associated with better bank performance within both low and high board size ranges. Alternatively, increased board size is negatively associated with bank performance in the intermediate board size range. The study did not find any significant relationship between performance and frequency of board meetings and board composition.Research limitations/implicationsThe behavioural variables reflecting the involvement of the board have not been incorporated in the model to determine the impact of board involvement on the performance of banks owing to the availability of data. It is hoped that this paper will be useful for major regulatory bodies such as the Ministry of Corporate Affairs (MCA), Securities and Exchange Board of India (SEBI), Company Law Board (CLB) and stock exchanges in India and other emerging economies in devising listing norms and other governance-related aspects.Originality/valueNon-linear relationships between the board size and performance are not normally prevalent in emerging economies, especially in the banking sector. However, such a relationship exists among the Indian banks. This paper is the first of its kind to identify and address the same. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Governance Emerald Publishing

Performance implications of board size, composition and activity: empirical evidence from the Indian banking sector

Corporate Governance , Volume 17 (3): 24 – Jun 5, 2017

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1472-0701
DOI
10.1108/CG-03-2016-0058
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to examine the performance implications of board size, composition and frequency of board meetings on the performance of banks.Design/methodology/approachThe performance of banks is assessed on various parameters such as return on assets (ROA), Tobin’s Q, non-performing asset ratio (NPA ratio) and the net write-off ratio (NWO ratio). The effects of changes in board size and composition and frequency of meetings on the performance of banks are investigated using feasible generalized least square (FGLS) estimation of panel data covering a time span of five years concerning 40 banks incorporated in India. Frequency of board meetings is taken as a proxy for board activity and involvement. The authors have also tested for endogeneity issues in the model.FindingsA curvilinear relationship was found between the board size and performance of banks. The authors have modelled a cubic form of the relationship for Indian banks. The authors’ findings indicate that an increase in board size is associated with better bank performance within both low and high board size ranges. Alternatively, increased board size is negatively associated with bank performance in the intermediate board size range. The study did not find any significant relationship between performance and frequency of board meetings and board composition.Research limitations/implicationsThe behavioural variables reflecting the involvement of the board have not been incorporated in the model to determine the impact of board involvement on the performance of banks owing to the availability of data. It is hoped that this paper will be useful for major regulatory bodies such as the Ministry of Corporate Affairs (MCA), Securities and Exchange Board of India (SEBI), Company Law Board (CLB) and stock exchanges in India and other emerging economies in devising listing norms and other governance-related aspects.Originality/valueNon-linear relationships between the board size and performance are not normally prevalent in emerging economies, especially in the banking sector. However, such a relationship exists among the Indian banks. This paper is the first of its kind to identify and address the same.

Journal

Corporate GovernanceEmerald Publishing

Published: Jun 5, 2017

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