TY - JOUR
T1 - Bondholder representatives on bank boards
T2 - a device for market discipline
AU - Distinguin, Isabelle
AU - Lepetit, Laetitia
AU - Strobel, Frank
AU - Tran, Phan Huy Hieu
N1 - Not yet published as of 23/01/2023.
PY - 2023/1/9
Y1 - 2023/1/9
N2 - We examine whether board representation of bondholders can be an effective market discipline mechanism to reduce bank risk, using a unique dataset combining information on bondholders and boards of directors of European listed banks. Our results show that the influence of bondholder representatives on the bank board significantly reduces bank risk without impacting profitability. The beneficial effect of this market discipline mechanism is stronger when bondholder representatives have regulatory experience, current or long relationships with their affiliated bondholders, and for more complex banks. In contrast, the reducing impact on bank risk is smaller for banks with lower capitalization levels.
AB - We examine whether board representation of bondholders can be an effective market discipline mechanism to reduce bank risk, using a unique dataset combining information on bondholders and boards of directors of European listed banks. Our results show that the influence of bondholder representatives on the bank board significantly reduces bank risk without impacting profitability. The beneficial effect of this market discipline mechanism is stronger when bondholder representatives have regulatory experience, current or long relationships with their affiliated bondholders, and for more complex banks. In contrast, the reducing impact on bank risk is smaller for banks with lower capitalization levels.
KW - market discipline
KW - bank risk
KW - board of directors
KW - bondholder representatives
UR - https://onlinelibrary.wiley.com/journal/14657295
UR - https://www.openicpsr.org/openicpsr/project/183822/
M3 - Article
JO - Economic Inquiry
JF - Economic Inquiry
SN - 0095-2583
ER -