The value of executive director heterogeneity in banking: Evidence - - PowerPoint PPT Presentation

Discussion of “The value of executive director heterogeneity in banking: Evidence from Appointment Announcements ”

Günseli Tümer-Alkan VU University Amsterdam

Conference "Diversity in Boards" De Nederlandsche Bank, 19-20 December 2013

Overview

• Important question:

how does executive director heterogeneity affect performance? (see Yermack, (2006) for a survey on board appointments)

• Contribution:

– empirical evidence on the value of executive director characteristics in the US banking sector – take other executives into account – focus on exogenous variation in director turnover

What the paper does

• Event study on director appointments
• Examine whether the stock market reaction to the

appointment announcement is affected by director characteristics

– Exclude appointments driven by endogeneous factors – Focus on single and external appointments & take care of selection bias

Main Results

• Positive CARs for selected event windows

– Human capital is valuable for US banks

• Director characteristics do explain CARs

– Age, Education and Experience => positive reaction – Gender, other industry experience, PhD do NOT matter – Busyness => negative reaction

• Performance effect

– Reduced with independent boards – Stronger for CEOs

Main comments

• The analysis shows that the CEO is still the most important
• ne among executives.
• Hypotheses development not clear.

– No justification of the choice among opposing predictions. – Even busyness is expected to create shareholder wealth.

• Carefully executed empirical study

– seems to consider most possibilities – No sign of omitted board/director variables – Arbitrary choice of event windows – Instrument in the selection model…

Event study

• Planned appointments after retirements or death

– does not rule out market’s reaction! – When is the departure of the previous director?

• Always after day -46?
• Choice of event windows:

– Market reactions data with: [-1, +1], [0, +4], [0, +5] – Univariate statistics and regressions with [+1, +3] – Robustness with [0, +3] and [0, +4] – Any specific reason? – Window not clearly stated when explaining CARs.

• Wording issue

Explaining announcement returns

• Selection model

– Is institutional ownership a good instrument? – It may affect returns through board independence or influencing CEO power – Sufficient to check correlation with CARs?

• Age was insignificant too

– Inverse Mill’s ratio significant once

• Suggested bank controls

– Structure of liabilities; maturity, retail/wholsale funding, uninsured (interbank deposits), – NPL – Liquidity

Moderating effects

• I like this part the most.
• Maybe extend?
• Interaction with blockholder

– This may work against the choice of the instrument though…

Policy implications

• Policy implication on gender:

“…pressure to increase more female representatives in the executive team has no empirical foundation in terms of shareholder wealth creation.”

• Is this really what we learn from the results?

Summing up

• Important question with policy implications
• Well written paper
• Well executed empirical study
• Looking forward to reading the next version.