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Do board characteristics and ownership structure matter for bank non-performing loans? Empirical evidence from US commercial banks

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Abstract

This paper aims to study the ability of the corporate governance of banks to reduce non-performing loans. The dynamic panel GMM estimation is applied to 184 US commercial banks over 2000–2013 period. Given that bank-size groups have different risk profiles, the full sample of US banks is divided into three asset-size classes. For every asset-size group of banks, we successively integrate five corporate governance variables in addition to the bank-specific and macroeconomic variables in separate regressions. The central finding of this research is that small banks are characterized by a weak and fragile corporate governance system which leads to a bad loan quality. This result can be explained by small banks’ reliance on personal connections. Concerning medium banks, we notice a sound corporate governance system. As far as large banks are concerned, it is to mention that the corporate governance system of these banks is neutralized. On account of the high level of liquidity, large banks are engaged in excessive lending practices without taking notice of the undue losses. This paper notably contributes to the financial literature via empirically proving that the effect of banks’ corporate governance on their loan quality depends on bank size.

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Authors and Affiliations

  1. Governance, Finance and Accounting Laboratory, Faculty of Economics and Management, Sfax University, P.O. Box 1169, Sfax, 3029, Tunisia

    Ameni Tarchouna

  2. Department of Accounting, College of Business and Economics, Qassim University, P.O. Box 6640, Buraidah, 51452, Qassim, Saudi Arabia

    Bilel Jarraya

  3. Faculty of Economics and Management, Sfax University, P.O. Box 1169, Sfax, 3029, Tunisia

    Abdelfettah Bouri

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  1. Ameni Tarchouna
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Tarchouna, A., Jarraya, B. & Bouri, A. Do board characteristics and ownership structure matter for bank non-performing loans? Empirical evidence from US commercial banks. J Manag Gov 26, 479–518 (2022). https://doi.org/10.1007/s10997-020-09558-2

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