How does board characteristics and insider ownership affect non-performing loans (NPLS) in European banking?
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Date
2018
Authors
Akwaa Sekyi, Ellis Kofi
Moreno Gené, Jordi
Miglietta, Federica
Roncone, Valeria
Other authors
Universitat de Lleida. Departament d'Administració d'Empreses
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Abstract
Manuscript type
Empirical
Research question/issue
The state of non-performing loans (NPLs) poses serious threat to the European financial market
and this has increased pressure on board of directors to intensify their monitoring functions to
safeguard shareholder assets. Yet there is a dearth of research that complement board characteristics
with managerial incentives to address NPLs. We examine 102 banks from 22 European
countries to ascertain how board characteristics and insider ownership affect NPLs.
Research findings/insight
We find that whilst gender diversity, board size and insider ownership have negative relation
with NPLs, average board age and board tenure show positive relation. The inclusion of
insider ownership improves the significance of board characteristics therefore confirming a
complementary instead of substitutable approaches in addressing NPLs. We report significant
differences in the intrinsic board characteristics of diversified and non-diversified banks.
Theoretical/academic implications
We contribute to existing literature by providing empirical support for the stakeholder and
agency theories in safeguarding assets of shareholders and indirect stakeholders (society).
Practitioner/policy implications
Our study adopts an incentivizing approach to risk management and provides a framework
for dealing with moral hazards in bank management, which lead to loan losses. Again, our
findings justify the European Banking Authority’s policy of the mandatory 40% female independent
directors among member countries.
Citation
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Journal or Serie
New trends in accounting and management, 2018, núm. 14, p. 1-66