Title: The Effects of Financial Deregulation on Bank Governance: Evidence from Bank Merger Deregulation
Abstract: This paper examines the effects of the bank merger deregulation passed by U.S. Congress in 1994 on the board composition of banks which, in turn, can be used to implicate bank governance. This banking legislation permits banks to merge across states and also motivates states to relax other banking restrictions. Using the panel data of about 1,900 banks in 14 states for 3 years, I found that banks in states with intrastate branching deregulation had a lower proportion of outside board directors (OBDs) and banks in states with interstate banking and the bank holding company deregulation had a higher percentage of OBDs. De novo entry deregulation also led to a higher percentage of OBDs, although the effect was not so significant. Moreover, using two-stage regressions, I was able to show that interstate deregulation, notably interstate banking and de novo entry, influenced the board composition through takeover possibilities. Therefore, the substitute hypothesis, stating that a takeover threat and OBD monitoring are substitutes in controlling managers, does not seem to hold for the banking industry. Finally, the board composition change in states with intrastate branching deregulation arose from bank branching behavior while the bank size deregulation meant banks became larger and consequently had more OBDs on the board.
Publication Year: 2011
Publication Date: 2011-01-01
Language: en
Type: article
Indexed In: ['crossref']
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