Corporate governance and financial stability in US banks: Do indirect interlocks matter?

Abdelbadie, Roba Ashraf and Salama, Aly (2019) Corporate governance and financial stability in US banks: Do indirect interlocks matter? Journal of Business Research, 104. pp. 85-105. ISSN 0148-2963

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Official URL: https://doi.org/10.1016/j.jbusres.2019.06.047

Abstract

In the context of the Depository Institution Management Interlocks Act of 1978 (Interlocks Act), we investigate the structure and implications of the professional connections among bank directors. Based on a hand-collected unique dataset for a sample of 168 US commercial banks listed continuously from 2009 to 2015, we find that the barriers set out in the Interlocks Act have been circumvented by the establishment of indirect interlocks that allow for mass professional connections among bank directors. Our evidence suggests that bank well-connectedness through indirect interlocks has a significant impact on financial stability. In particular, we find, in support of the extended resource-based view (RBV), that well-connected banks mitigate their credit and insolvency risks but, contrary to our expectation, lower bank capitalisation. Our evidence suggests that the Interlocks Act and bank governance reforms need to consider the role of professional communications among bank directors to fully achieve their intended goals.

Item Type: Article
Uncontrolled Keywords: Board governance, Bank financial stability, Indirect interlocks, Resource-based view (RBV)US banking sector
Subjects: N100 Business studies
N300 Finance
Department: Faculties > Business and Law > Newcastle Business School
Depositing User: Elena Carlaw
Date Deposited: 11 Jan 2021 09:19
Last Modified: 11 Jan 2021 09:30
URI: http://nrl.northumbria.ac.uk/id/eprint/45179

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