The Impact of CEO-Board Dynamic on Bank Performance

If you’re on the board of directors at a community bank, keeping up with the latest research and best practices in governance is important. In most cases, that requires more reading than any sane human being has time for. Don’t worry. We’ve got your back!

Research Recap gives board members the latest findings from the most highly-respected publications in corporate governance research without the tedium of pouring over page after page of scholarly lingo. Let’s get into it…

The Publication

Scientific Annals of Economics and Business

The Study

Corporate Governance Influence on Banking Performance. An Analysis on Romania and Bulgaria

The Research

Empirical
Research is driven by observations, experimentation, and data as opposed to relying on theory alone.

The Set-Up

This study was all about determining how a CEO’s involvement in board affairs affects a bank’s performance. Researchers tested two hypotheses:

  • CEO duality (under which one person serves as both CEO and chairman of the board) negatively impacts a bank’s profitability.
  • A CEO’s presence serving on the board of directors (as an equal board member) negatively impacts a bank’s profitability.

In both capacities, existing research has shown a CEO’s involvement to have a negative impact on the financial performance of a bank. This study pulled its data from banks in Romania and Bulgaria—two developing economies—to see if past results hold up in countries for which best practices in corporate governance have yet to be widely adopted.

Again, this was an empirical study. If you want to look through the data and methodology, you can do that here, but it makes War and Peace look like a Judy Blume novel. So … you’ve been warned.

The Takeaways

This study confirmed, for developing economies, correlations observed of banks in developed economies. A bank’s return on average assets (ROAA) and return on average equity (ROAE) are negatively impacted by a CEO serving on the board of directors.

A negative impact was observed when the CEO served as chairman of the board (CEO duality) and when they served as an equal member. However, it was noted that the magnitude of that negative influence was greater in cases of CEO duality than it was when the CEO served as an equal member.

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We just saved you…

29 minutes, 2 seconds

Estimated reading time of our article = 1 minute, 42 seconds.

Estimated reading time of the research = 30 minutes, 44 seconds

In 29 minutes, 2 seconds you could…

  • Treat yourself to five minutes of morning yoga, then wake up 24 minutes later in a dissociative panic as you prepare to show up late to work again.
  • Make a frozen pizza and uncork twist open a bottle of pink moscato because tonight is all about you.

And, of course, 29 minutes and 2 seconds gives you more than enough time to schedule a demo of the Directorpoint Platform. We build boards you can bank on. What can we do for you?

The Source

Onofrei, Mihaela & Firtescu, Bogdan & Terinte, Paula. (2018). Corporate Governance Influence on Banking Performance. An Analysis on Romania and Bulgaria. Scientific Annals of Economics and Business. 65. 317-332. 10.2478/saeb-2018-0020.

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