Board Independence and Bank Risk‐Taking: A Meta‐Analysis of the Role of Formal Institutions

ABSTRACT Research Question/Issue Although scholars drawing on the classic agency framework predict a positive relationship between board independence and bank risk‐taking, scholars adopting a contingency approach predict that such a relationship may not be positive. This theoretical debate is reflected in the inconclusive empirical evidence. In this study, building on the new institutional economics tradition, we go beyond a universal approach to our focal relationship and further advance a contingency approach to the agency framework. Research Findings/Insights In a retrospective meta‐analysis combining 81 primary studies from 2002 to 2022 that cover 106 countries, we find that the board independence–bank risk‐taking relationship is not universal but contingent on the institutional conditions facing the bank. Specifically, we find that our focal relationship is positively moderated by the level of depositor monitoring and negatively moderated by regulatory stringency. Moreover, we find that the effect of depositor monitoring is negatively moderated by regulatory stringency. Theoretical/Academic Implications Our study simultaneously relaxes two central assumptions of classic agency theory and shows that formal institutions, and in particular those protecting stakeholders' interests, can directly affect independent directors' efficacy as shareholder agents. We also point out the ability and incentives of independent directors to monitor in the interest of shareholders as the relevant causal mechanisms. Lastly, we add to research adopting a polycentric view of institutions and complement a burgeoning research stream examining corporate governance bundles. Practice/Policy Implications Our study adds to the debate among practitioners and policymakers on what constitutes good bank governance. It also intersects the debate on the relative merits of market and regulatory discipline in banking.

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Publication Details

Journal
Corporate Governance An International Review
Published
2025-04-14
DOI
https://doi.org/10.1111/corg.12649
Citations
1
Primary Topic
Banking stability, regulation, efficiency
Type
article
Field-Weighted Citation Impact
2.21
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article

Board Independence and Bank Risk‐Taking: A Meta‐Analysis of the Role of Formal Institutions

Makafui Kwame Kumodzie‐Dussey, Ettore Spadafora, Kwabena A. Addo, Leonid Pugachev
1 citations
Corporate Governance An International Review
Banking stability, regulation, efficiency
2.21
article

Board Independence and Bank Risk‐Taking: A Meta‐Analysis of the Role of Formal Institutions

Makafui Kwame Kumodzie‐Dussey, Ettore Spadafora, Kwabena A. Addo, Leonid Pugachev
article en
1 citations

Abstract

ABSTRACT Research Question/Issue Although scholars drawing on the classic agency framework predict a positive relationship between board independence and bank risk‐taking, scholars adopting a contingency approach predict that such a relationship may not be positive. This theoretical debate is reflected in the inconclusive empirical evidence. In this study, building on the new institutional economics tradition, we go beyond a universal approach to our focal relationship and further advance a contingency approach to the agency framework. Research Findings/Insights In a retrospective meta‐analysis combining 81 primary studies from 2002 to 2022 that cover 106 countries, we find that the board independence–bank risk‐taking relationship is not universal but contingent on the institutional conditions facing the bank. Specifically, we find that our focal relationship is positively moderated by the level of depositor monitoring and negatively moderated by regulatory stringency. Moreover, we find that the effect of depositor monitoring is negatively moderated by regulatory stringency. Theoretical/Academic Implications Our study simultaneously relaxes two central assumptions of classic agency theory and shows that formal institutions, and in particular those protecting stakeholders' interests, can directly affect independent directors' efficacy as shareholder agents. We also point out the ability and incentives of independent directors to monitor in the interest of shareholders as the relevant causal mechanisms. Lastly, we add to research adopting a polycentric view of institutions and complement a burgeoning research stream examining corporate governance bundles. Practice/Policy Implications Our study adds to the debate among practitioners and policymakers on what constitutes good bank governance. It also intersects the debate on the relative merits of market and regulatory discipline in banking.

Corporate Governance An International ReviewVol. 33(6)
Rochester Institute of Technology (US), University of Sussex (GB), Utrecht University (NL), University of Missouri–St. Louis (US)
Openalex Percentile: Top 15%
Banking stability, regulation, efficiency
2.21
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