Impact of banker-directors on corporate governance

Abstract

The 2008 global financial crisis served as a stark revelation of deep-rooted flaws in corporate governance, especially within financial institutions. These governance failures not only amplified the risks but also triggered a chain reaction of economic instability, shaking the foundations of global markets and eroding trust in the financial system. The crisis underscored the urgent need for reforms to address the systemic vulnerabilities that had long gone unchecked. In response, the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA) of 2010 was introduced to strengthen corporate governance and enhance risk management in U.S. financial institutions, primarily through the creation of risk committees. This thesis explores the broader impact of the banker-directors on corporate governance, focusing on three critical areas: director quality after the DFA, research and development (R&D) investment decisions, and Environmental, Social, and Governance (ESG) performance. The study uses quasi-natural experiments and difference-in-differences methodologies to analyse how banker-directors, those who serve on the boards of both financial and non-financial firms, influence these areas. The findings reveal that, despite the DFA’s aim to enhance corporate governance and promote the appointment of high-quality directors, the Act has had limited impact on the overall improvement of director quality. Moreover, the involvement of banker-directors tends to foster conservative decision-making, particularly in relation to R&D investments where risk aversion hampers innovation. However, during periods of regulatory enforcement, non-financial firms tend to make more substantial ESG-related improvements when banker-directors are preoccupied with their main bank enforcement actions. The results indicate the need for balanced governance structures that consider both financial discipline and long-term strategic goals like innovation and sustainability. This thesis contributes to the literature by shedding light on the nuanced role of banker-directors and the broader consequences of regulatory reforms on corporate behaviour.

More information

Identifiers

ORCID for Abdurrahim Altunisik: orcid.org/0009-0006-9424-6272

ORCID for Taufiq Choudhry: orcid.org/0000-0002-0463-0662

ORCID for Yue Zhou: orcid.org/0000-0001-6544-2078

Catalogue record

Export record