Diana Žigraiová
The paper investigates how the management board composition of banking institutions affects their risk-taking behavior in the Czech Republic. More specifically, we examine the effect of average director age, the proportion of female directors, the proportion of non-national directors, and director education level on four different bank risk proxies. We build a unique data set comprising selected biographical information on the management board members of Czech financial institutions holding a banking license over the 2001–2012 period. Our most robust finding is that higher proportions of non-national directors increase bank risk as measured by profit volatility and reduce bank stability as captured by the Z-score for the Czech banking sector overall and for the segments of general commercial banks, small and mid-sized banks and adequately capitalized banks. Moreover, we also detect risk-increasing implications of board size for the segments of building societies and small and mid-sized banks. As for average board tenure, its effect on risk-taking varies depending on bank characteristics. We find mixed evidence on the effect of female directors and do not find any strong effect of directors’ age on risk in the Czech banking sector. All in all, the results of our analysis are subject to the proxy of bank risk used. The reader should keep in mind that higher absolute level of bank risk is not necessarily unfavorable as it does not capture if risk-taking behavior is excessive for a given return.
JEL codes: C33, G21, G34, J16
Keywords: Banks, management board composition, panel data, risk-taking
Issued: December 2015
Download: CNB WP No. 14/2015 (pdf, 415 kB)