Mohamed Belkhir

Board of Directors' Size and Performance in the Banking Industry

Purpose - This paper aims to investigate the relationship between board size and performance in a sample of 174 bank and savings-and-loan holding companies, over the period 1995-2002. Design/methodology/approach - In order to examine the relationship between board of directors size and performance in the banking industry, the paper uses various statistical tools, including panel univariate analyses and panel data techniques. Findings - Contrary to theories predicting that smaller boards of directors are more effective, increasing the number of directors in banking firms does not undermine performance. In contrast, the evidence is in favor of a positive relationship between board size and performance, as measured by Tobins Research limitations/implications - The paper recognizes that a number of factors that are not controlled for in this study might be behind the positive empirical association between board size and the performance measures used. Practical implications - The results of this study suggest that the calls to reduce the number of directors in banks might have adverse effects on performance. Originality/value - This paper contributes to the banking literature by investigating the relationship between an important governance mechanism, the board of directors, and performance in banking firms.

Board Structure, Ownership Structure, and Firm Performance: Evidence from Banking

This article examines the interrelations among five ownership and board characteristics in a sample of 260 banks and Savings-and-Loan Holding Companies (SLHCs). These governance characteristics, designed to reduce agency problems between shareholders and managers are insider ownership, blockholder ownership, the proportion of outside directors, board leadership structure and board size. Using Two-Stage Least Squares (2SLS) regressions, we present the evidence of interdependencies between the board and ownership structures. The results suggest that the banks substitute between governance mechanisms that align the interests of managers and shareholders. These findings suggest that cross-sectional Ordinary Least Square (OLS) regressions of bank performance on single governance mechanisms may be misleading. Indeed, we find statistically significant relationships between performance and insider ownership and blockholder ownership when using OLS regressions. However, these statistically significant relationships disappear when the simultaneous equations framework is used. Together, these findings are consistent with optimal use of each governance mechanism by banks.

Compensation Vega, Deregulation, and Risk-Taking: Lessons from the US Banking Industry

This study examines three issues related to the sensitivity of bank CEO compensation to risk, or vega: (1) its relevance compared with CEO compensation vega in industrial firms; (2) its determinants; and (3) its effect on bank risk-taking. Using a sample of 156 U.S. bank holding companies (BHCs) and a benchmark sample of 544 industrial firms over the period 1993–2006, we find that the vega of CEO compensation in banking is of a much smaller magnitude than the vega of CEO compensation in industrial firms, despite an effort by BHCs to increase it since the mid-1990s. We also find that larger BHCs with better investment opportunities and those that operate in a deregulated environment reward their CEOs with a compensation that has a higher sensitivity to risk. Finally, our analyses show that BHCs in which CEOs receive a higher compensation vega assume a higher risk.

CEO inside debt and the value of excess cash

Purpose n n n n nThe purpose of this paper is to investigate the relationship between corporate debt-like compensation and the value of excess cash holdings. n n n n nDesign/methodology/approach n n n n nThe sample comprises 876 US firms covered by ExecuComp over the period 2006-2013. The authors apply the valuation regression of Fama and French (1998) to examine the marginal value of excess cash as a function of CEO inside debt holdings. n n n n nFindings n n n n nThis paper proposes one hypothesis. The results constitute evidence that the value of excess cash to shareholders declines as CEO inside debt increases. More interestingly, excess cash holdings contribute less to firm value when shareholders expect their value to be destroyed due to managers’ conservative behavior. n n n n nResearch limitations/implications n n n n nThe sample comprises only US firms, owing to a lack of firms data from other countries. It would be interesting to conduct future research on an international sample. n n n n nPractical implications n n n n nThis paper contributes to a deeper understanding of investor valuation of excess cash in the presence of CEO inside debt. The findings complement previous studies on US firms by confirming the existence of a relationship between the agency costs of debt and firm policy decisions. n n n n nOriginality/value n n n n nThis work is, to the best of the authors’ knowledge, the first to examine the relationship between debt-like compensation and excess cash valuation, and it supports the view that the conflict between shareholders and debtholders largely affects firm cash policy, and hence, cash valuation.

Market Discipline of Bank Risk and the Too-Big-To-Fail Protection: Evidence from Risk Management Decisions

I test the market discipline of bank risk hypothesis by examining whether banks choose risk management policies that account for the risk preferences of subordinated debtholders. Using around 500,000 quarterly observations on the population of U.S. insured commercial banks over the 1995-2009 period, I document that the ratio of subordinated debt affects bank risk management decisions consistent with the market discipline hypothesis only when subordinated debt is held by the parent holding company. In particular, the subordinated debt ratio increases the likelihood and the extent of interest rate derivatives use for risk management purposes at BHC-affiliated banks, where subordinated debtholders have a better access to information needed for monitoring and control rights provided by equity ownership. At non-affiliated banks, a higher subordinated debt ratio leads to risk management decisions consistent with moral hazard behavior. The analysis also shows that the too-big-to-fail protection prevents market discipline even at BHC-affiliated banks.