TY - JOUR
T1 - Corporate Governance and Financial Stability in US Banks
T2 - Do Indirect Interlocks Matter?
AU - Abdelbadie, Roba Ashraf
AU - Salama, Aly
PY - 2019/11/1
Y1 - 2019/11/1
N2 - In the context of the Depository Institution Management Interlocks Act of 1978 (Interlocks Act), we investigate the structure and implications of the professional connections among bank directors. Based on a hand-collected unique dataset for a sample of 168 US commercial banks listed continuously from 2009 to 2015, we find that the barriers set out in the Interlocks Act have been circumvented by the establishment of indirect interlocks that allow for mass professional connections among bank directors. Our evidence suggests that bank well-connectedness through indirect interlocks has a significant impact on financial stability. In particular, we find, in support of the extended resource-based view (RBV), that well-connected banks mitigate their credit and insolvency risks but, contrary to our expectation, lower bank capitalisation. Our evidence suggests that the Interlocks Act and bank governance reforms need to consider the role of professional communications among bank directors to fully achieve their intended goals.
AB - In the context of the Depository Institution Management Interlocks Act of 1978 (Interlocks Act), we investigate the structure and implications of the professional connections among bank directors. Based on a hand-collected unique dataset for a sample of 168 US commercial banks listed continuously from 2009 to 2015, we find that the barriers set out in the Interlocks Act have been circumvented by the establishment of indirect interlocks that allow for mass professional connections among bank directors. Our evidence suggests that bank well-connectedness through indirect interlocks has a significant impact on financial stability. In particular, we find, in support of the extended resource-based view (RBV), that well-connected banks mitigate their credit and insolvency risks but, contrary to our expectation, lower bank capitalisation. Our evidence suggests that the Interlocks Act and bank governance reforms need to consider the role of professional communications among bank directors to fully achieve their intended goals.
U2 - 10.1016/j.jbusres.2019.06.047
DO - 10.1016/j.jbusres.2019.06.047
M3 - Article
SN - 0148-2963
VL - 104
SP - 85
EP - 105
JO - Journal of Business Research
JF - Journal of Business Research
ER -