Does corporate governance determine bank loan portfolio choice?ABSTRACT In this paper, we examine the relationship between the structure of a bank's board of directors and the bank's loan portfolio choice (holdings of agricultural, real estate, consumer, and commercial and industrial loans). The board of directors has the responsibility to monitor the loan policy of the bank; therefore, the structure of the board seems likely to influence the portfolio of loans that the bank has outstanding. However, financial institutions are unique in that they have additional external regulatory agencies regulatory agency Independent government commission charged by the legislature with setting and enforcing standards for specific industries in the private sector. The concept was invented by the U.S. that also monitor managerial behavior and actions. By means of this logic, bank boards should not influence loan policy. Using a sample of over 300 bank holding companies in 1997, we show evidence consistent with both arguments. First, growth in C&I loans as a percent of total assets is inversely in·verse adj. 1. Reversed in order, nature, or effect. 2. Mathematics Of or relating to an inverse or an inverse function. 3. Archaic Turned upside down; inverted. n. 1. related to the proportion of outsiders on the BHC BHC benzene hexachloride. BHC, ?-BHC see benzene hexachloride. board. Second, both proportion of outsiders end a board strength index are directly related to growth in consumer loans as a percent of total assets. Third, farm, and to a lesser extent, real estate, loan holdings are not related to bank board structure. Fourth, changes in consumer and C&I lending does not consistently explain the BHC's future performance. Keywords: Bank Loan Portfolio, Corporate Governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. , Board Strength Index 1. INTRODUCTION In 1988, the Office of the Comptroller of the Currency The Office of the Comptroller of the Currency (or OCC) was established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States. (OCC OCC See: Options Clearing Corporation OCC See Options Clearing Corporation (OCC). ), in a study on bank failures, identified three major internal causes of bank capital erosion: an uninformed or inattentive in·at·ten·tive adj. Exhibiting a lack of attention; not attentive. in  at·ten board of directors, overly
aggressive activity by the board or managers, and problems involving the
CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . They list several factors that constitute poor board supervision
including (1) nonexistent non·ex·is·tence n. 1. The condition of not existing. 2. Something that does not exist. non or poorly followed loan policies, (2) decisions made by one dominant individual, and (3) granting unwarranted concentrations of credit. The relationship between a bank's board structure and lending practices thus appears to be an important one. The purpose of this paper, therefore, is to address this relationship and to ask the question: is a bank's loan portfolio influenced by its board structure? Several studies would conclude that the answer to our question is yes. Jansen Jan·sen , Cornelis 1585-1638. Dutch theologian and founder of the Jansenist movement, whose adherents included Antoine Arnauld, Blaise Pascal, and Jean Racine. Noun 1. (1993) argues that problems with internal control systems start with the board of directors. The board is responsible for managerial oversight
Oversight may refer to:
adj. 1. Lacking an essential quality or element. 2. Inadequate in amount or degree; insufficient. deficient a state of being in deficit. in some way, lending policies and guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. may be absent or disregarded dis·re·gard tr.v. dis·re·gard·ed, dis·re·gard·ing, dis·re·gards 1. To pay no attention or heed to; ignore. 2. To treat without proper respect or attentiveness. n. . However, other studies conclude that a bank's governance Governance makes decisions that define expectations, grant power, or verify performance. It consists either of a separate process or of a specific part of management or leadership processes. Sometimes people set up a government to administer these processes and systems. structure has little influence on the operations and performance of the firm since outside monitors, such as the FDIC FDIC See: Federal Deposit Insurance Corporation FDIC See Federal Deposit Insurance Corporation (FDIC). , ensure proper bank management. For instance, Simpson Simp·son , Sir James Young 1811-1870. British obstetrician and a founder of gynecology. He is also known for introducing the use of chloroform as an anesthetic. and Gleason Glea·son , Herbert John Known as "Jackie." 1916-1987. American entertainer best remembered for his portrayal of Ralph Kramden on the television comedy The Honeymooners (1952-1957). (1999) find that four of five board characteristics analyzed an·a·lyze tr.v. an·a·lyzed, an·a·lyz·ing, an·a·lyz·es 1. To examine methodically by separating into parts and studying their interrelations. 2. Chemistry To make a chemical analysis of. 3. in their sample had no effect on bank failures. In this study, we analyze the loan practices and governance structures in a sample of over 300 Bank Holding Companies (BHC) from 1997. Using a simultaneous equation framework, our results suggest that banks with a strong board of directors tend to increase consumer lending Consumer lending or consumer loans refers to any type of loan product that is not a mortgage; such as a car, boat, manufactured home, home equity loan, home equity line of credit, signature loan, signature line of credit, recreational vehicle, or Certificate of Deposit loans. as a proportion of total assets. Further, we show that banks with a high representation of outsiders on the board of directors tend to reduce their commercial and industrial loan concentration as a proportion of total assets. However, these changes are not linked to subsequent financial performance of the bank. Board structure is not significantly related to changes in other loan activities including agriculture and real estate. The paper is organized as follows: Section 2 reviews the literature and states hypotheses; Section 3 describes the data and methodology used in the study; Section 4 examines the results of the statistical analyses; and Section 5 concludes. 2. LITERATURE REVIEW 2.1 Why bank boards matter In non-financial firms, the structure of the board of directors has been shown to be related to, among other characteristics, agency costs Agency Costs The costs resulting from an agent performing services for a principal. Notes: Agency costs are generally the commissions earned by agents. See also: Agency Problem, Agent, Principal Agency costs and financial performance. Jensen Noun 1. Jensen - modernistic Danish writer (1873-1950) Johannes Vilhelm Jensen and Meckling (1976) first described the board's role in monitoring managers on behalf of shareholders. Boards best able to do this are those that can best alleviate Alleviate To make something easier to be endured. Mentioned in: Kinesiology, Applied agency problems through independent internal control. From a review of the corporate governance literature since Jensen and Meckling's study, John and Senbet (1998) report that the degree of board independence is related to composition, and that board independence fosters board effectiveness. Several examples follow. Core, Holthausen There are localities and quarters that have the name Holthausen in Germany: in Lower Saxony
The state of having two natures, which is often applied in physics. The classic example is wave-particle duality. The elementary constituents of nature—electrons, quarks, photons, gravitons, and so on—behave in some respects . Beasley Beasley is a surname, and may refer to
Issuing securities at less than their market value. underpricing The pricing of a new security issue at less than the prevailing price of the same security in the secondary market. Underpricing helps ensure a successful sale. . The studies listed above pertain per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. generally to samples of non-financial firms. However, banks' boards of directors appear to have a substantial role in monitoring managers as well. In a document titled "Insights for Bank Directors" created by the Federal Reserve Banks of Kansas City Kansas City, two adjacent cities of the same name, one (1990 pop. 149,767), seat of Wyandotte co., NE Kansas (inc. 1859), the other (1990 pop. 435,146), Clay, Jackson, and Platte counties, NW Mo. (inc. 1850). and St. Louis Louis, titular duke of Burgundy Louis, 1682–1712, titular duke of Burgundy; grandson of King Louis XIV of France. He became heir to the throne on the death (1711) of his father, Louis the Great Dauphin. , details on directors' roles and responsibilities regarding bank lending policies are described. In it, the Fed states that it is the board's responsibility to review and approve the loan policies (which also can be written by the board or a board committee) because "the board is ultimately responsible for the bank." Bank boards review and approve the loan policies at least once a year. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the Kansas City Federal Reserve, this process is generally done following the election of directors. A reasonable assumption can therefore be made that the structure of the board of directors should be a factor in the resulting loan policy changes of the bank. Several studies in the literature on BHCs' governance structure agree. Pi and Timme (1993) examine the role of the chairman on a bank's board of directors. They find that cost efficiency and return on assets Return on assets (ROA) Indicator of profitability. Determined by dividing net income for the past 12 months by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net income/sales) multiplied by asset utilization (sales/assets). are lower for banks that have the same person serving as chairman of the board and CEO than for banks without such duality. However, Pi and Timme also find that the proportion of insiders (outsiders) on the board of directors is unrelated to BHC performance. Conversely con·verse 1 intr.v. con·versed, con·vers·ing, con·vers·es 1. To engage in a spoken exchange of thoughts, ideas, or feelings; talk. See Synonyms at speak. 2. , Mishra Mishra or Misra is an Indian surname, normally associated with the Brahmin mostly it is similar to Mitra or Maitreya or Maitra or Maitri friend Mishra and Mitra written in devnagri script look almost identical and both have same meaning. and Nielsen Noun 1. Nielsen - Danish composer (1865-1931) Carl August Nielsen, Carl Nielsen (2000), in their study of large BHCs, find a positive relationship between the percentage of independent outside directors and CEO pay-performance sensitivity. According to the authors, accounting performance is positively affected by relative tenure of independent outside directors on the bank's board. Further, Lorsch Lorsch is a small town in southwest Germany (60 kilometers south of Frankfurt) in the Kreis Bergstraße district of Hesse. More than 12,000 people live in the town. It is the site of the Benedictine Lorsch Abbey, which used to be one of the greatest centers of Carolingian art. and MacIver (1989) assert that board members exercise more power when firms face external threats, thus making the structure of the board more significant during these circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or . Mishra and Nielsen (2000) posit that high levels of regulatory supervision, as in the case of banks, constitute an example of an external threat. Thus, bank board members should wield wield tr.v. wield·ed, wield·ing, wields 1. To handle (a weapon or tool, for example) with skill and ease. 2. To exercise (authority or influence, for example) effectively. See Synonyms at handle. more power than unregulated Adj. 1. unregulated - not regulated; not subject to rule or discipline; "unregulated off-shore fishing" regulated - controlled or governed according to rule or principle or law; "well regulated industries"; "houses with regulated temperature" 2. industries' boards. 2.2 Why bank boards may not matter On the other hand, a stream of literature exists which shows that the structure and monitoring power at bank boards is different from that at non-financial firm boards. For instance, John, Mehran Mehran is derived from the term "Mehr", or Mithra, a pre-Islamic ancient Persian deity. Mehran may also refer to:
Regulators place further requirements on the boards of banks (subsidiaries of the BHC) to ensure the soundness of the financial system. According to Macey Macey is the name of several communes in France:
Scarlett hot-tempered heroine-coquette who wooed Southern Gentlemen. [Am. Lit.: Gone With The Wind] See : Flirtatiousness O’Hara Scarlett marriages to three other men fail to dim her love for Ashley Wilkes. (2003) these expectations may also influence the operation of the board of the BHC. Adams Adams, town (1990 pop. 9,445), Berkshire co., NW Mass., in the Berkshires, on the Hoosic River; inc. 1778. Its manufactures include chemicals, textiles, and paper products. The Berkshire region attracts tourists year-round. and Mehran (2003) characterize many of the differences between the corporate governance of bank holding companies and manufacturing firms. These differences include larger BHC boards with more outsiders that meet more frequently and have more committees, but less use of stock options for CEO relative to salary and bonus, and smaller ownership shares by institutions and CEOs. Prowse Prowse is a surname, and may refer to
The findings of Prowse are consistent with findings by Simpson and Gleason (1999) who examine data over roughly the same timeframe and likewise find little evidence of corporate governance characteristics influencing bank activity. They examine bank failure probability and ownership stakes by directors and officers, ownership stakes by the CEO, size of the board, the percentage of inside directors, and CEO duality. Their only significant finding is that a lower probability of financial distress Financial distress Events preceding and including bankruptcy, such as violation of loan contracts. exists when the CEO and chairman are the same person. Den Haan, Sumner Sum·ner , James Batcheller 1887-1955. American biochemist. He shared a 1946 Nobel Prize for his pioneering work on crystallizing enzymes. , and Yamashiro Yamashiro may refer to:
Arsinoë put her own son in place of Orestes; her son was killed and Orestes was saved. [Gk. Myth.: Zimmerman, 32] Barabbas robber freed in Christ’s stead. [N.T.: Matthew 27:15–18; Swed. Lit. behavior is that banks want to protect their equity capital position through hedging because of bank capital regulations. Successful banks will experience smaller deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. in the bank equity capital position. This suggests that there may be a link between the corporate governance and the asset portfolio of a bank, which we will examine in this paper. From this discussion, we predict that the structure of bank boards should have some influence on bank lending activities, but the direction is not clear. Bank boards have a responsibility for lending oversight, supervision, and policy, but because of external regulatory agencies in place, board influence may be muted mut·ed adj. 1. a. Muffled; indistinct: a muted voice. b. Mute or subdued; softened: muted colors. 2. . The next two sections describe our process of examining this issue. 3. DATA We start with the sample of banks from Compustat's Bank Annual File from 1997. This file contains approximately 640 of the leading United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. financial institutions with the following 4-digit SIC codes: 6021 (National Commercial Banks), 6022 (State Commercial Banks), 6029 (Commercial Banks, Not Elsewhere Classified), 6035 (Savings Institutions, Federally Chartered), 6036 (Savings Institutions, Not Federally Chartered), and 6311 (Life Insurance). For our purposes, we include only commercial banks, or those banks from the Bank Annual File with SIC codes of 6021, 6022, and 6029. Our final sample includes 121 national commercial banks, 193 state commercial banks, and 2 commercial banks (not elsewhere classified). For this total sample of 316 commercial banks, we collect board of director variables from each bank's proxy statement Proxy Statement A document containing the information that a company is required by the SEC to provide to shareholders so they can make informed decisions about matters that will be brought up at an annual stockholder meeting. in 1997. Specifically, we collect the following variables: the size of the board, CEO/chairman duality, percent of outsiders, percent of insiders, percent of grays, and percent of the board made up of women. Please see Table 1 for a complete description of each board variable. We use 1997 as the base year for two reasons. First, the federal funds rate Federal Funds Rate The interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. was relatively stable at this time so this should not influence loan portfolio changes. Second, in order to analyze subsequent performance of the sample BHCs, we use a date that will provide us with at least five years of performance data. We next collect bank characteristics and loan data from call reports and from Compustat '''Standard & Poor's Compustat® is a database of financial, statistical and market information on active and inactive companies throughout the world. Compustat® data has a reputation for extensive coverage, standardization, expertise and timeliness. . We access the call reports through the FDIC's website (http://www.fdic.gov/). From the call reports, we gather the following condition ratios for years 1997 to 1999: equity capital to assets, core capital (leverage) ratio, Tier 1 risk-based capital ratio Risk-based capital ratio Bank requirement that there be a minimum ratio of estimated total capital to estimated risk-weighted asset. , and total risk-based capital ratio. The following loan values are collected for years 1997 to 1999: real estate loans, agricultural loans, commercial and industrial (C&I) loans, and loans to individuals (consumer loans). In addition, we collect information on the total assets of the BHC. From Compustat, we retrieve the following bank characteristic and performance variables for years 1997 to 2003: total sales, price-earnings ratio Price-earnings ratio Shows the multiple of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). , return on assets, and return on equity. Variables are described further in Table 1. Using the data on boards of directors, we calculate a board structure index using a ranking system. The percentile percentile, n the number in a frequency distribution below which a certain percentage of fees will fall. E.g., the ninetieth percentile is the number that divides the distribution of fees into the lower 90% and the upper 10%, or that fee level rankings for each board characteristic are calculated where score and monitoring effectiveness are directly related. For instance, since board size has been shown to be negatively related to monitoring effectiveness (see, for instance, Yermack, 1996), the inverse (mathematics) inverse - Given a function, f : D -> C, a function g : C -> D is called a left inverse for f if for all d in D, g (f d) = d and a right inverse if, for all c in C, f (g c) = c and an inverse if both conditions hold. percentile rank The percentile rank of a score is the percentage of scores in its frequency distribution which are lower. For example, a test score which is greater than 85% of the scores of people taking the test is said to be at the 85th percentile. is used in the calculation of the index. Larger boards receive a lower ranking. Core, Holthausen, and Larcker (1999) show that the proportion of insider and gray directors on the board is inversely related to board strength, and that the presence of CEO/chairman duality is also an obstruction obstruction /ob·struc·tion/ (ob-struk´shun) 1. the act of blocking or clogging. 2. block; occlusion; the state or condition of being clogged.obstruc´tive ob·struc·tion n. to the board's duties. Outside directors, however, are found to be directly related to the strength and independence of the board (see, for instance, Beasley (1996) and Rosenstein and Wyatt (1990)). Each characteristic is included in the ranking system. For each firm, the average of the percentile rankings constitutes the firm's board structure index. High index scores indicate strong boards characterized char·ac·ter·ize tr.v. character·ized, character·iz·ing, character·iz·es 1. To describe the qualities or peculiarities of: characterized the warden as ruthless. 2. by having greater independence and monitoring effectiveness. We analyze bank characteristics and their summary statistics by first dividing the sample into BHCs with strong boards (board index is greater than median board index) and weak boards (board index is less than median). We also divide the sample by high and low outsider Outsider often refers to one identified as on the periphery of social norms, one living or working apart from mainstream society, or one observing a group from the outside, as used in:
median statistics - a branch of applied mathematics concerned with the collection and interpretation of quantitative data and the use of probability theory to estimate population , again, appear lower for strong boards and high outsider proportions than for weak boards and low outsider representation. Bank and governance characteristics are further analyzed in Table 3, where we divide the sample by high and low (above and below median) loan values for farming, real estate, C&I, and consumer loans. Board characteristics are not significantly different between each sample. Both mean and median values of each board characteristic are similar across loan types. Further, condition ratios appear to be similar across loan types. However, lending values across samples do appear to diverge diverge - If a series of approximations to some value get progressively further from it then the series is said to diverge. The reduction of some term under some evaluation strategy diverges if it does not reach a normal form after a finite number of reductions. . For above-median farm loan banks (FARM=1), banks tend to be larger (average total assets equals $10,168 million compared to $6,559 million for FARM=0), have higher average real estate loan values ($2,638 versus $1,740 million), have higher C&I loans ($1,653 versus $1,049 million), and lower consumer loan values ($712 versus $780 million). 4. DISCUSSION AND RESULTS In order to test the hypothesis that the structure of the board is related to bank loan portfolio choice, we examine a series of regressions. After controlling for size and equity capital, we analyze the relation between board index (BDINDEX) and change in lending practices for four types of loans (LOAN%TA). We measure firm size by the natural logarithm Natural logarithm Logarithm to the base e (approximately 2.7183). of total assets and include the total equity capital ratio to control for the banks' capital position. The dependent variable (LOAN%TA) is calculated as follows where "loan" refers to agriculture, real estate, C&I, and consumer loans (each analyzed separately): LOAN%TA = ([loan.sub.1998]/[totassets.sub.1998]) - ([loan.sub.1997]/[totassets.sub.1997])/([loan.sub.1997]/ [totassets.sub.1997]) In Table 4 we present descriptive statistics descriptive statistics see statistics. of these loan changes for the entire sample. During this timeframe, the average bank increased farm loans as a proportion of total assets by 18%, increased real estate holdings by 0.4%, increased C&I loans by 4.3% and decreased holdings of consumer loans by 1.3%. However, median lending changes show a decline in all loan types. Since the dependent variable, LOAN%TA, may be determined by the simultaneous interaction of the determinants of governance structure, we analyze these relationships in a multivariate The use of multiple variables in a forecasting model. setting using a simultaneous equation approach with BDINDEX (and later proportion of outsiders, or PCOUTSIDE) and change in lending practices (LOAN%TA) as the endogenous variables Endogenous variable A value determined within the context of a model. Related: Exogenous variable. . The two equations are estimated simultaneously using a three-stage least squares procedure. The first series of equations are as follows: LOAN%TA = a + [b.sub.1]BDINDEX + [b.sub.2]LNTA LNTA Lao National Tourism Administration (Laos) + [b.sub.3]TOTCAR BDINDEX = a + [b.sub.1]LOAN%TA + [b.sub.2]LNTA We report the results for each loan type in Tables 5 to 8. In Table 5, we address the relationship between board structure and the percent change in C&I loans to assets from 1997 to 1998. Using BDINDEX as the measure of board strength in the first two columns of Table 5, we find no relationship between board structure and change in C&I loans during this time period. However, in the third column of Table 5, the coefficient coefficient /co·ef·fi·cient/ (ko?ah-fish´int) 1. an expression of the change or effect produced by variation in certain factors, or of the ratio between two different quantities. 2. on C&I loans to assets is a negative and significant (at the 5% level) predictor of the percentage of outside directors on a bank's board. Specifically, we analyze the following simultaneous regression equations Regression equation An equation that describes the average relationship between a dependent variable and a set of explanatory variables. for each loan type: LOAN%TA = a + [b.sub.1]PCOUTSIDE + [b.sub.2]LNTA + [b.sub.3]TOTCAR PCOUTSIDE = a + [b.sub.1]LOAN%TA + [b.sub.2]LNTA In column four of Table 5, the proportion of outside directors is negative and significant (at the 5% level) when change in C&I loans is the dependent variable. Results from Table 5 imply that (1) a 1% increase in a bank's holdings of C&I loans as a percent of total assets is associated with an 8% decrease in the proportion of outsiders on the board, and (2) a 1% increase in outsider representation on a bank's board is related to a 25% decline of C&I loans as a percent of TA. However, the overall board index is not significantly related to changes in C&I loans. Next, we turn to changes in banks' consumer loan portfolios. In the first series of simultaneous regressions (columns 1 and 2) in Table 6, we show that the coefficient on changes in consumer loans as a percentages of total assets (COLOAN%TA) is positive and significant (at the 5% level) with BDINDEX as the dependent variable. In addition, the coefficient on BDINDEX is positive and significant in the second regression regression, in psychology: see defense mechanism. regression In statistics, a process for determining a line or curve that best represents the general trend of a data set. with COLOAN%TA as the dependent variable. Results using PCOUTSIDE (columns 3 and 4) are consistent with the board index equations. These results strongly suggest that changes in consumer loans are directly related to the strength of the board of directors; both measured by an overall board index and by the proportion of outsiders on the banks' board. Banks tend to increase holdings of consumer loans as board strength increases. These results are interesting because both the mean and median changes in consumer loan proportions for our sample are negative (see Table 4). In Tables 7 and 8, results are not as conclusive Determinative; beyond dispute or question. That which is conclusive is manifest, clear, or obvious. It is a legal inference made so peremptorily that it cannot be overthrown or contradicted. . In Table 7, we analyze the relationship between changes in banks' holdings of real estate loans as a percentage of total assets from 1997 to 1998. While the coefficient on BDINDEX is negative, it is statistically significant only at the 17% level. P-values are even larger when using PCOUTSIDE. In Table 8, we use the change in agriculture (farm) loans and board structure and also find that both the board index and percent of outsiders on the board are not significantly related. Since changes in banks' portfolios of both consumer and C&I loans are related to board structure (positively and negatively, respectively), we next follow the banks performance after 1998 according to these loan portfolio changes. First we separate the sample into four subgroups: "high" consumer and C&I loan change (above the median), and "low" consumer and C&I loan change (below the median) banks. We calculate the average performance level from 1999 to 2003 (years following the loan change). We present graphical depictions of performance (sales and ROA ROA See: Return on assets ROA See: Right of accumulation ROA See return on assets (ROA). ) from 1999 to 2003 for each loan type in the following figures. The graphs provide mixed results. In Figure 1, we see that sales (revenue) are higher for banks that increased holdings of C&I loans in 1997. Despite the fact that percent of outsiders on the board is negatively related to changes in C&I loans (indicating stronger boards decrease C&I holdings), we see that the banks that increased C&I lending had better sales performance than banks which decreased holdings. In Figure 2, banks with increases in consumer loans from 1997 to 1998 tended to have better sales performance in subsequent years. Consumer loans are directly related to board strength, so it appears that stronger boards monitor banks, which increased consumer loan holdings, and these banks had subsequent high sales performance. [FIGURES 1-2 OMITTED] Figures 3 and 4 are less conclusive. Figure 3 demonstrates that banks which decreased holdings in C&I loans tended to have stronger ROA performance until 2001. A similar graph is pictured in Figure 4, where banks that decreased consumer loans in 1997 had stronger ROA than banks that increased consumer lending until 2001. Overall, changes in bank loan portfolios do not appear to affect future sales or ROA. [FIGURES 3-4 OMITTED] 5. CONCLUSIONS In this paper we examine whether there exists a relationship between a bank's board of directors and its' lending policy. On the one hand, the board of directors is given the responsibility of monitoring and overseeing the bank's loan portfolio; therefore, the structure of the board seems likely to influence the portfolio of loans that the bank has outstanding. On the other hand, financial institutions are unique in that they have additional external regulatory agencies that also monitor managerial behavior and actions. Hence, the board of directors at a financial firm may not have the same structure or power that a non-financial firm board has, and therefore bank boards should not influence loan policy. Using a sample of over 300 bank holding companies in 1997, we show evidence consistent with both arguments. First, growth in C&I loans as a percent of total assets is inversely related to the proportion of outsiders on the BHC board. More independent boards tended to decrease holdings of C&I loans during this time period. Second, both proportion of outsiders and a board strength index are directly related to growth in consumer loans as a percent of total assets. Strong boards increased holdings of consumer loans in the loan portfolio. Third, farm, and to a lesser extent, real estate, loan holdings are not related to bank board structure. Fourth, changes in consumer and C&I lending does not consistently explain the BHC's future performance. This study adds to a growing body of literature on corporate governance in financial institutions. The results provide evidence that depending on the strength of their boards, BHCs adjusted their loan portfolios during the timeframe that we examined. Given that other studies have found that loan portfolio changes can influence bank equity capital positions and that the deterioration of bank equity capital positions are important for the soundness of financial institutions, it may be important for boards to closely monitor their loan portfolio to ensure the soundness of their institution. Furthermore, strong boards, in particular those boards that are more independent and effective monitors, will be more likely to proactively adjust their portfolio to prevent the deterioration of their bank equity capital positions and therefore regulators will have less of a need to monitor and intervene intervene v. to obtain the court's permission to enter into a lawsuit which has already started between other parties and to file a complaint stating the basis for a claim in the existing lawsuit. . 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W., and Larcker, David F., "Corporate Governance, Chief Executive Officer Compensation, and Firm Performance", Journal of Financial Economics, Vol. 51 (3), 1999, 371-406. Den Haan, Wouter Wouter is a Dutch given male name. The source of this name is Walter, and they both are Germanic given male names. They mean "ruler of the army" or "ruler of the forest". Example of a Belgian Wouter can be found here : [1] J., Sumner, Steven Ste´ven n. 1. Voice; speech; language. Ye have as merry a steven As any angel hath that is in heaven. - Chaucer. 2. An outcry; a loud call; a clamor. To set steven to make an appointment. W., and Yamashiro, Guy, "Banks' Loan Portfolio and the Monetary Transmission Mechanism", manuscript manuscript, a handwritten work as distinguished from printing. The oldest manuscripts, those found in Egyptian tombs, were written on papyrus; the earliest dates from c.3500 B.C. , 2004. Federal Reserve Banks of Kansas City and St. Louis, Insights for Bank Directors: A Basic Course on evaluating Financial Performance and Portfolio Risk, 2004, Federal Reserve Center for Online Learning, http://www.stlouisfed.org/col/director/agenda.htm. Howton, Shawn Shawn , Ted 1891-1972. American dancer and choreographer noted for his partnership with Ruth Saint Denis. Together they founded the Denishawn Dance School (1915), for which he choreographed works based on Native American themes. D., Howton, Shelly W., and Olson, Gerald Gerald - ["Gerald: An Exceptional Lazy Functional Programming Language", A.C. Reeves et al, in Functional Programming, Glasgow 1989, K. Davis et al eds, Springer 1990]. T., "Board Ownership and IPO Returns", Journal of Economics and Finance, Vol. 25 (1), 2001, 100-114. Jensen, Michael Michael, archangel Michael (mī`kəl) [Heb.,=who is like God?], archangel prominent in Christian, Jewish, and Muslim traditions. In the Bible and early Jewish literature, Michael is one of the angels of God's presence. C., "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems", Journal of Finance, Vol. 48 (3), 1993, 831-80. Jensen, Michael C., and Meckling, William William, crown prince of Germany William or Frederick William, 1882–1951, crown prince of Germany, son of William II. In World War I he commanded (1914) an army on the Western Front and was nominal commander in the German attack H., "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure", Journal of Financial Economics, Vol. 3 (4), 1976, 305-60. John, Kose, and Senbet, Lemma lemma (lĕm`ə): see theorem. (logic) lemma - A result already proved, which is needed in the proof of some further result. W., "Corporate Governance and Board Effectiveness", Journal of Banking and Finance, Vol. 22 (4), 1998, 371-403. John, Kose, Mehran, Hamid, and Qian, Yiming, "Subordinated debt Subordinated Debt A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". , regulation and incentive feature in bank CEO compensation", manuscript, 2003. Lorsch, Jay William, and MacIver, Elizabeth Elizabeth, sister of King Louis XVI of France Elizabeth, 1764–94, sister of King Louis XVI of France, known as Madame Elizabeth. Deeply loyal to her brother, she remained in France during the French Revolution, suffered imprisonment, and was , Pawns Pawn(s) may refer to:
Boston, town (1991 pop. 26,495), E central England, on the Witham River. Boston's fame as a port dates from the 13th cent., when it was a Hanseatic port trading wool and wine. Having recovered from a decline in the 18th and 19th cent. , 1989. Macey, Jonathan Jonathan (jŏn`əthən) [short for Jehonathan, Heb.,=Yahweh has given]. 1 In the Bible, Saul's son and David's friend, both killed at the battle of Mt. Gilboa. David showed kindness to his son Mephibosheth. R., and O'Hara, Maureen, "The Corporate Governance of Banks", Federal Reserve Bank of New York The Bank of New York, abbrieviated to BNY, was a global financial services company that existed until its merger with the Mellon Financial Corporation on July 2, 2007.[1] The bank now continues under the new name of The Bank of New York Mellon Corporation. Economic Policy Review, Vol. 9 (1), 2003, 91-107. Mishra, Chandra S
In Hinduism, Chandra (lit. "shining)[1] is a lunar deity and a Graha. Chandra is also identified with the Vedic Lunar deity Soma (lit. ., and Nielsen, James James, person in the Bible James, in the Gospel of St. Luke, kinsman of St. Jude. The original does not specify the relationship. James, rivers, United States James. F., "Board Independence and Compensation Policies in Large Bank Holding Companies", Financial Management, Vol. 29 (3), 2000, 51-69. Office of the Comptroller of the Currency, Bank Failure: An Evaluation of the Factors Contributing, to the Failure of National Banks, Washington Washington, town, England Washington, town (1991 pop. 48,856), Sunderland metropolitan district, NE England. Washington was designated one of the new towns in 1964 to alleviate overpopulation in the Tyneside-Wearside area. D.C., 1988, Peek, Joe, and Rosengren, Eric ERIC Educational Research Information Clearinghouse ERIC Educational Resources Information Center ERIC ERISA Industry Committee ERIC Epidemiologic Research and Information Center (Durham, NC) S., "The International Transmission of Financial Shocks: The Case of Japan", American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of Economic Review, Vol. 87(4), 1997, 495-505. Pi, Lynne Lynne may refer to: In places:
Prowse, Stephen, "Corporate Control in Commercial Banks", Journal of Financial Research, Vol. 20 (4), 1997, 509-27 Rosenstein, Stuart, and Wyatt, Jeffrey G., "Outside Directors, Board Independence, and Shareholder Wealth", Journal of Financial Economics, Vol. 26 (2), 1990, 175-91 Simpson, W. Gary Gary, city (1990 pop. 116,646), Lake co., NW Ind., a port of entry on Lake Michigan; inc. 1909. Gary was founded by the U.S. Steel Corporation, which purchased the land in 1905 and landscaped it for a city. , and Gleason, Anne Anne, British princess Anne (Anne Elizabeth Alice Louise), 1950–, British princess, only daughter of Queen Elizabeth II and Prince Philip, duke of Edinburgh. She was educated at Benenden School. E., "Board Structure, Ownership, and Financial Distress in Banking Firms", International Review of Economics and Finance, Vol. 8 (3), 1999, 281-92 Yermack, David, "Higher Market Valuation of Companies with a Small Board of Directors", Journal of Financial Economics, Vol. 40 (2), 1996, 185-211. (1) We would like to thank Megan Boughton There are several places in England named Boughton:
Noun (in Britain) a machine that randomly selects winning numbers of Premium Bonds [acronym of Electronic Random Number Indicator Equipment] ERNIE n abbr (BRIT Gutierrez Gutierrez is the name of:
(2) Prowse uses the BOPEC rating system (a rating system used by bank examines that judges a bank as (1) strongest to (5) weakest in five component areas including (i) bank subsidiaries (ii) other non-bank subsidiaries Non-bank subsidiaries, are firms owned by bank holding companies which offer non-bank products and services, such as insurance and investment advice, and do not offer FDIC insured banking products, such as checking and savings accounts. (iii) parent company (iv) the level of consolidated earnings, and (v) the level of capital adequacy) to define regulatory intervention. The 45% (62%) figure corresponds to a situation in which intervention occurs if the BHC has a composite BOPEC rating of 4 or 5 (3, 4, or 5). (3) Furthermore, more than half of the market-based control changes are the result of friendly mergers. Hostile takeovers Hostile Takeover A takeover attempt that is strongly resisted by the target firm. Notes: Hostile takeovers are usually bad news, as the employee moral of the target firm can quickly turn to animosity against the acquiring firm. are much less likely in BHCs because of regulation and the takeover process (Adams and Mehran, 2003). Steven W. Sumner, University of San Diego San Diego (săn dēā`gō), city (1990 pop. 1,110,549), seat of San Diego co., S Calif., on San Diego Bay; inc. 1850. San Diego includes the unincorporated communities of La Jolla and Spring Valley. Coronado is across the bay. , San Diego, California “San Diego” redirects here. For other uses, see San Diego (disambiguation). San Diego is a coastal Southern California city located in the southwestern corner of the continental United States. As of 2006, the city has a population of 1,256,951. , USA Elizabeth Webb, Federal Reserve Bank of Philadelphia The Federal Reserve Bank of Philadelphia, headquartered in Philadelphia, Pennsylvania, is responsible for the Third District of the Federal Reserve, which covers eastern Pennsylvania, southern New Jersey, and Delaware. , Philadelphia Philadelphia, ancient cities Philadelphia, name of several ancient cities. One was in Lydia, W Asia Minor (now W Turkey). At the foot of Mt. Tmolus and near the location of modern Alaşehir, it was founded in the 2d cent. B.C. , Pennsylvania Pennsylvania (pĕnsəlvā`nyə), one of the Middle Atlantic states of the United States. It is bordered by New Jersey, across the Delaware River (E), Delaware (SE), Maryland (S), West Virginia (SW), Ohio (W), and Lake Erie and New York , USA Dr. Steven W. Sumner earned his Ph.D. at the University of California, San Diego UCSD is consistently ranked among the top ten public universities for undergraduate education in the United States by U.S. News & World Report.[3] It is a Public Ivy. [1] For graduate studies, most of UCSD's Ph.D. in 2003. Currently he is an assistant professor of Economics at the University of San Diego. Dr. Elizabeth Webb earned her Ph.D. at Drexel University Drexel University, at Philadelphia, Pa.; coeducational; founded 1891 by Anthony J. Drexel, opened 1892, chartered 1894 as Drexel Institute of Art, Science, and Industry. It was renamed Drexel Institute of Technology in 1936 and gained university status in 1970. in 2003. Currently she is a supervisory financial analyst with the Federal Reserve Bank of Philadelphia.
TABLE 1: DATA DESCRIPTION
Variable Definition
Board Characteristics
Members Number of directors currently on the board.
Duality If the chairman of the board is also the CEO of the
bank, duality is set to 1.
Outsiders Number of directors that have no ties to the firm
other than directorship (i.e., not a present/past
employee of the firm, consultant to the firm, or
related to an employee of the firm).
Insiders Number of directors who are current or former
employees of the firm, or are related (wife, sibling,
etc.) of an employee of the firm.
Grays Number of directors who are not employees of the
firm, but receive payment from the firm for services
unrelated to director duties such as consulting,
working for a law or accounting firm that provides
services for the firm.
Women Number of women on the board.
Financial Variables
Total The sum of all assets owned by the institution
Assets including cash, loans, securities, bank premises
and other assets. This total does not include
off-balance-sheet accounts.
Real Estate Loans secured primarily by real estate, whether
Loans originated by the bank or purchased.
Commercial Commercial and industrial loans. Excludes all loans
and secured by real estate, loans to individuals, loans
Industrial to depository institutions and foreign governments,
Loans loans to states and political subdivisions and lease
financing receivables.
Consumer Loans to individuals for household, family, and other
Loans personal expenditures including outstanding credit
card balances and other secured and unsecured consumer
loans.
Agricultural Loans to finance agricultural production and other
Loans loans to farmers. Excludes savings institutions
filing a TFR.
Equity Total equity capital as a percent of total assets.
capital to
assets
Core capital Tier 1 (core) capital as a percent of average total
(leverage) assets minus ineligible intangibles.
ratio
Tier 1 (core) capital includes: common equity plus
noncumulative perpetual preferred stock plus minority
interests in consolidated subsidiaries less goodwill
and other ineligible intangible assets. The amount of
eligible intangibles (including mortgage servicing
rights) included in core capital is limited in
accordance with supervisory capital regulations.
Average total assets used in this computation are
an average of daily or weekly figures for the quarter.
Tier 1 Tier 1 (core) capital as a percent of risk-weighted
risk-based assets as defined by the appropriate federal remulator
capital ratio for prompt corrective action during that time period.
Total Total risk based capital as a percent of risk-weighted
risk-based assets as defined by the appropriate federal regulator
capital ratio for prompt corrective action during that time period.
TABLE 2: SUMMARY STATISTICS
Variable Mean Median
Strong Weak Strong Weak
Panel A Board Board Board Board
Board Characteristics
members 12.22 11.47 12.00 10.00
duality 0.36 0.66 0.00 1.00
pcoutside 0.80 0.58 0.82 0.61
pcinside 0.17 0.29 0.14 0.27
pcgray 0.03 0.12 0.00 0.11
pcwomen 0.08 0.03 0.08 0.00
Bdindex 0.69 0.41 0.68 0.43
Capital-to-Asset Ratios
Total 0.09 0.09 0.09 0.08
Core 0.09 0.08 0.08 0.08
Tier 1 0.13 0.12 0.12 0.12
Total Risk 0.14 0.14 0.13 0.13
Total 9479.41 6085.26 505.36 529.61
Assets
Lending
Real 2637.22 1453.46 212.60 212.47
Estate
Agricultural 38.69 27.00 0.88 0.56
C & I 1603.02 905.29 45.08 50.78
Consumer 891.65 623.22 36.74 43.59
High Low High Low
Panel B Outside Outside Outside Outside
Board Characteristics
Members 12.33 11.37 11.00 11.00
Duality 0.47 0.55 0.00 1.00
Pcoutside 0.83 0.56 0.83 0.60
Pcinside 0.15 0.31 0.14 0.29
Pcgray 0.03 0.12 0.00 0.10
Pcwomen 0.06 0.05 0.04 0.00
Bdindex 0.68 0.42 0.68 0.44
Capital-to-Asset Ratios
Total 0.09 0.09 0.09 0.08
Core 0.09 0.09 0.08 0.08
Tier 1 0.13 0.13 0.12 0.12
Total Risk 0.14 0.14 0.13 0.13
Total 9581.15 5871.02 479.81 572.47
Assets
Lending
Real 2668.31 1383.37 200.20 220.35
Estate
Agricultural 37.60 27.71 1.13 0.48
C & I 1497.79 994.34 41.14 57.57
Consumer 877.36 629.84 36.74 38.46
Variable Minimum Maximum
Strong Weak Strong Weak
Panel A Board Board Board Board
Board Characteristics
members 5.00 4.00 26.00 28.00
duality 0.00 0.00 1.00 1.00
pcoutside 0.17 0.00 1.00 0.86
pcinside 0.00 0.00 0.83 0.75
pcgray 0.00 0.00 0.25 0.54
pcwomen 0.00 0.00 0.79 0.30
Bdindex 0.55 0.12 0.98 0.55
Capital-to-Asset Ratios
Total 0.06 0.06 0.18 0.15
Core 0.06 0.05 0.99 0.15
Tier 1 0.07 0.07 0.30 0.24
Total Risk 0.09 0.09 0.31 0.26
Total 16.60 41.52 277999.77 353816.27
Assets
Lending
Real 0.00 14.52 57636.45 45843.40
Estate
Agricultural 0.00 0.00 1189.61 1308.45
C & I 0.00 0.05 47305.65 56990.65
Consumer 0.17 1.29 25822.77 33359.98
High Low High Low
Panel B Outside Outside Outside Outside
Board Characteristics
Members 5.00 4.00 28.00 27.00
Duality 0.00 0.00 1.00 1.00
Pcoutside 0.73 0.00 1.00 0.72
Pcinside 0.00 0.00 0.27 0.83
Pcgray 0.00 0.00 0.18 0.54
Pcwomen 0.00 0.00 0.79 0.30
Bdindex 0.39 0.12 0.98 0.67
Capital-to-Asset Ratios
Total 0.06 0.06 0.16 0.18
Core 0.05 0.05 0.99 0.18
Tier 1 0.07 0.07 0.29 0.30
Total Risk 0.09 0.10 0.29 0.31
Total 16.60 45.03 277999.77 353816.27
Assets
Lending
Real 0.00 15.36 57636.45 45843.40
Estate
Agricultural 0.00 0.00 1189.61 1308.45
C & I 0.00 0.05 47305.65 56990.65
Consumer 0.17 1.29 25822.77 33359.98
Variable Std Dev
Strong Weak
Panel A Board Board
Board Characteristics
members 3.98 4.50
duality 0.48 0.48
pcoutside 0.11 0.16
pcinside 0.11 0.15
pcgray 0.05 0.12
pcwomen 0.09 0.05
Bdindex 0.10 0.11
Capital-to-Asset Ratios
Total 0.02 0.02
Core 0.08 0.02
Tier 1 0.05 0.03
Total Risk 0.05 0.03
Total 32290.92 32252.92
Assets
Lending
Real 8163.19 4995.93
Estate
Agricultural 140.00 136.42
C & I 5501.33 5271.50
Consumer 3163.91 3226.91
High Low
Panel B Outside Outside
Board Characteristics
Members 4.18 4.30
Duality 0.50 0.50
Pcoutside 0.07 0.15
Pcinside 0.06 0.16
Pcgray 0.05 0.12
Pcwomen 0.10 0.06
Bdindex 0.13 0.12
Capital-to-Asset Ratios
Total 0.02 0.02
Core 0.08 0.02
Tier 1 0.04 0.04
Total Risk 0.04 0.03
Total 31860.54 32682.69
Assets
Lending
Real 8097.86 4962.75
Estate
Agricultural 137.42 139.17
C & I 5292.47 5496.42
Consumer 3112.51 3282.04
Dollar Figures in Millions; Bank Balance Sheet/income Statement
Variables represent values for 1997.
TABLE 3: SUMMARY STATISTICS
Variable Mean Median
High Low High Low
Panel A Farm Farm Farm Farm
Board Characteristics
members 11.92 11.82 11.00 11.00
duality 0.48 0.52 0.00 1.00
pcoutside 0.72 0.68 0.75 0.71
pcinside 0.20 0.24 0.17 0.21
pcgray 0.08 0.07 0.00 0.00
pcwomen 0.05 0.06 0.00 0.00
Bdindex 0.57 0.54 0.58 0.53
Capital-to-Asset Ratios
Total 0.09 0.09 0.08 0.09
Core 0.08 0.09 0.08 0.08
Tier 1 0.12 0.13 0.11 0.12
Total Risk 0.14 0.14 0.13 0.13
Total 10168.31 6558.85 568.50 451.56
Assets
Lending
Real 2638.28 1740.31 273.92 186.47
Estate
Agricultural 42.93 27.51 4.91 0.07
C & I 1653.41 1049.05 61.07 46.52
Consumer 711.72 779.90 48.29 30.36
Real Real Real Real
Estate Estate Estate Estate
Panel B High Low High Low
Board Characteristics
Members 11.86 11.84 11.00 11.00
Duality 0.61 0.44 1.00 0.00
Pcoutside 0.70 0.69 0.73 0.71
Pcinside 0.23 0.23 0.20 0.20
Pcgray 0.07 0.08 0.00 0.00
Pcwomen 0.06 0.05 0.00 0.00
Bdindex 0.54 0.56 0.54 0.56
Capital-to-Asset Ratios
Total 0.09 0.09 0.09 0.08
Core 0.08 0.09 0.08 0.08
Tier 1 0.12 0.13 0.12 0.12
Total Risk 0.14 0.14 0.13 0.13
Total 10725.13 4893.57 572.47 488.47
Assets
Lending
Real 2555.80 1542.00 247.09 204.36
Estate
Agricultural 40.69 25.11 0.50 1.39
C & I 1785.34 732.40 58.63 41.14
Consumer 962.44 556.06 36.84 37.55
C & I C & I C & I C & I
Panel C High Low High Low
Board Characteristics
members 11.36 12.18 10.00 11.00
duality 0.61 0.44 1.00 0.00
pcoutside 0.68 0.70 0.73 0.71
pcinside 0.26 0.21 0.20 0.18
pcgray 0.07 0.08 0.00 0.00
pcwomen 0.06 0.05 0.00 0.00
Bdindex 0.53 0.56 0.54 0.55
Capital-to-Asset Ratios
Total 0.09 0.09 0.08 0.09
Core 0.08 0.09 0.08 0.08
Tier 1 0.13 0.13 0.12 0.12
Total Risk 0.14 0.14 0.13 0.13
Total 10506.44 5107.29 743.80 447.79
Assets
Lending
Real 3033.21 1075.43 294.10 188.99
Estate
Agricultural 57.59 9.85 0.90 0.62
C & I 1738.12 778.54 55.38 45.34
Consumer 1044.26 476.11 48.50 32.52
Cons Cons Cons Cons
Panel D High Low High Low
Board Characteristics
Members 11.53 12.06 11.00 11.00
Duality 0.56 0.48 1.00 0.00
Pcoutside 0.70 0.69 0.73 0.72
Pcinside 0.23 0.23 0.20 0.20
Pcgray 0.07 0.08 0.00 0.05
Pcwomen 0.05 0.06 0.00 0.00
Bdindex 0.55 0.55 0.54 0.56
Capital-to-Asset Ratios
Total 0.09 0.09 0.09 0.08
Core 0.09 0.09 0.08 0.08
Tier 1 0.13 0.13 0.12 0.12
Total Risk 0.14 0.14 0.13 0.13
Total 9359.55 6228.11 473.10 577.94
Assets
Lending
Real 2024.42 2061.30 196.66 248.59
Estate
Agricultural 37.08 28.89 0.61 0.82
C & I 1605.44 908.21 41.36 57.70
Consumer 731.63 781.63 34.89 41.02
Variable Minimum Maximum
High Low High Low
Panel A Farm Farm Farm Farm
Board Characteristics
members 6.00 4.00 26.00 28.00
duality 0.00 0.00 1.00 1.00
pcoutside 0.25 0.00 1.00 1.00
pcinside 0.00 0.00 0.64 0.83
pcgray 0.00 0.00 0.43 0.54
pcwomen 0.00 0.00 0.79 0.60
Bdindex 0.16 0.12 0.97 0.98
Capital-to-Asset Ratios
Total 0.06 0.06 0.15 0.18
Core 0.05 0.05 0.15 0.99
Tier 1 0.07 0.07 0.30 0.29
Total Risk 0.09 0.09 0.31 0.29
Total 16.60 41.52 277999.77 353816.27
Assets
Lending
Real 4.40 0.00 57636.45 45843.40
Estate
Agricultural 0.01 0.00 1189.61 1308.45
C & I 0.24 0.00 47305.65 56990.65
Consumer 1.95 0.17 15676.12 33359.98
Real Real Real Real
Estate Estate Estate Estate
Panel B High Low High Low
Board Characteristics
Members 4.00 5.00 28.00 26.00
Duality 0.00 0.00 1.00 1.00
Pcoutside 0.25 0.00 1.00 1.00
Pcinside 0.00 0.00 0.75 0.83
Pcgray 0.00 0.00 0.43 0.54
Pcwomen 0.00 0.00 0.79 0.30
Bdindex 0.15 0.12 0.92 0.98
Capital-to-Asset Ratios
Total 0.06 0.06 0.16 0.18
Core 0.05 0.05 0.15 0.99
Tier 1 0.07 0.07 0.27 0.30
Total Risk 0.09 0.09 0.29 0.31
Total 16.60 41.52 353816.27 159326.75
Assets
Lending
Real 4.40 0.00 57636.45 54267.68
Estate
Agricultural 0.00 0.00 1308.45 638.86
C & I 0.24 0.00 56990.65 20614.23
Consumer 0.17 1.29 33359.98 25822.77
C & I C & I C & I C & I
Panel C High Low High Low
Board Characteristics
members 4.00 5.00 26.00 28.00
duality 0.00 0.00 1.00 1.00
pcoutside 0.17 0.00 1.00 1.00
pcinside 0.00 0.00 0.83 0.78
pcgray 0.00 0.00 0.50 0.54
pcwomen 0.00 0.00 0.79 0.30
Bdindex 0.15 0.12 0.97 0.98
Capital-to-Asset Ratios
Total 0.06 0.06 0.16 0.18
Core 0.05 0.05 0.15 0.99
Tier 1 0.07 0.07 0.30 0.29
Total Risk 0.09 0.09 0.31 0.29
Total 16.60 41.52 277999.77 353816.27
Assets
Lending
Real 4.40 0.00 57636.45 45843.40
Estate
Agricultural 0.00 0.00 1308.45 170.32
C & I 0.05 0.00 47305.65 56990.65
Consumer 0.57 0.17 25822.77 33359.98
Cons Cons Cons Cons
Panel D High Low High Low
Board Characteristics
Members 5.00 4.00 27.00 28.00
Duality 0.00 0.00 1.00 1.00
Pcoutside 0.15 0.00 1.00 1.00
Pcinside 0.00 0.00 0.64 0.83
Pcgray 0.00 0.00 0.54 0.50
Pcwomen 0.00 0.00 0.79 0.60
Bdindex 0.16 0.12 0.90 0.98
Capital-to-Asset Ratios
Total 0.06 0.06 0.15 0.18
Core 0.05 0.06 0.15 0.99
Tier 1 0.07 0.07 0.30 0.29
Total Risk 0.09 0.09 0.31 0.29
Total 16.60 41.52 353816.27 159326.75
Assets
Lending
Real 4.40 0.00 57636.45 54267.68
Estate
Agricultural 0.00 0.00 1308.45 1189.61
C & I 0.24 0.00 56990.65 20614.23
Consumer 0.85 0.17 33359.98 25822.77
Variable Std Dev
High Low
Panel A Farm Farm
Board Characteristics
members 3.98 4.37
duality 0.50 0.50
pcoutside 0.18 0.18
pcinside 0.13 0.15
pcgray 0.11 0.10
pcwomen 0.09 0.07
Bdindex 0.19 0.18
Capital-to-Asset Ratios
Total 0.02 0.02
Core 0.02 0.07
Tier 1 0.04 0.04
Total Risk 0.04 0.04
Total 35773.45 30346.43
Assets
Lending
Real 8851.57 5428.66
Estate
Agricultural 152.69 129.78
C & I 6029.89 5036.98
Consumer 2248.46 3584.21
Real Real
Estate Estate
Panel B High Low
Board Characteristics
Members 4.27 4.26
Duality 0.49 0.50
Pcoutside 0.17 0.18
Pcinside 0.15 0.14
Pcgray 0.10 0.11
Pcwomen 0.10 0.06
Bdindex 0.18 0.18
Capital-to-Asset Ratios
Total 0.02 0.02
Core 0.02 0.08
Tier 1 0.04 0.04
Total Risk 0.04 0.04
Total 41742.01 18585.02
Assets
Lending
Real 7779.56 5607.11
Estate
Agricultural 179.61 77.49
C & I 7056.61 2900.70
Consumer 3653.38 2665.16
C & I C & I
Panel C High Low
Board Characteristics
members 4.17 4.30
duality 0.49 0.50
pcoutside 0.18 0.17
pcinside 0.16 0.13
pcgray 0.10 0.11
pcwomen 0.10 0.06
Bdindex 0.18 0.17
Capital-to-Asset Ratios
Total 0.02 0.02
Core 0.02 0.08
Tier 1 0.04 0.04
Total Risk 0.04 0.04
Total 32796.77 31612.01
Assets
Lending
Real 8365.84 4560.02
Estate
Agricultural 194.50 25.27
C & I 5615.22 5133.65
Consumer 3345.18 3021.94
Cons Cons
Panel D Hii.h Low
Board Characteristics
Members 3.95 4.46
Duality 0.50 0.50
Pcoutside 0.17 0.18
Pcinside 0.15 0.14
Pcgray 0.11 0.10
Pcwomen 0.09 0.08
Bdindex 0.17 0.19
Capital-to-Asset Ratios
Total 0.02 0.02
Core 0.02 0.08
Tier 1 0.04 0.04
Total Risk 0.04 0.04
Total 41127.35 20179.82
Assets
Lending
Real 7262.58 6288.83
Estate
Agricultural 152.99 122.78
C & I 6995.30 3092.87
Consumer 3359.77 3032.49
Dollar Figures in Millions; Bank Balance Sheet/income Statement
Variables represent values for 1997.
TABLE 4: SUMMARY STATISTICS
Variable Mean Median Minimum Maximum
FARM%ASST 0.182 -0.071 -1.00 12.343
RE%ASST 0.004 -0.005 -0.349 0.509
CI%ASST 0.043 -0.002 -0.544 1.656
CO%ASST -0.013 -0.104 -0.672 13.526
TABLE 5: 3SLS--C&I LOANS
Variable BDINDEX CILOAN%TA PCOUTSIDE CILOAN%TA
INT 0.500 -0.215 0.621 -0.079
(<0.001) (0.232) (<0.001) (0.660)
CILOAN%TA 0.007 -0.087
(0.863) (0.027)
LNTA 0.003 0.008 0.006 0.010
(0.610) (0.407) (0.358) (0.309)
BDINDEX -0.003
(0.976)
PCOUTSIDE -0.250
(0.012)
TOTRCAR 1.036 1.114
(0.038) (0.025)
N 257 257
System R-sq 0.009 0.030
Bank Balance Sheet/Income Statement Variables represent values
for 1997. P-values reported under coefficients.
TABLE 6: 3SLS--CONSUMER LOANS
Variable BDINDEX COLOAN%TA PCOUTSIDE COLOAN%TA
INT 0.490 0.066 0.610 0.011
(<0.001) (0.908) (<0.001) (0.985)
COLOAN%TA 29 0.025
(0.021) (0.036)
LNTA 0.004 -0.03 0.006 -0.032
(0.514) (0.361) (0.306) (0.338)
BDINDEX 0.729
(0.020)
PCOUTSIDE 0.691
(0.034)
TOTRCAR -0.479 -0.511
(0.759) (0.744)
N 255 258
System R-sq 0.020 0.020
Bank Balance Sheet/income Statement Variables represent values
of 1997. P-values reported under coefficients.
TABLE 7: 3SLS--REAL ESTATE LOANS
Variable BDINDEX RELOAN%TA PCOUTSIDE RELOAN%TA
INT 0.507 0.071 0.615 0.021
(<0.001) (0.363) (<0.001) (0.789)
RELOAN%TA -0.130 0.095
(0.169) (0.300)
LNTA 0.003 -0.003 0.006 -0.003
(0.654) (0.530) (0.343) (0.442)
BDINDEX -0.058
(0.169)
PCOUTSIDE 0.045
(0.300)
TOTRCAR 0.018 -0.011
(0.933) (0.958)
N 257 257
System R-sq 0.009 0.007
Bank Balance Sheet/income Statement Variables represent values
of 1997. P-values reported under coefficients.
TABLE 8: 3SLS--AGRICULTURE LOANS
Variable BDINDEX FARMLOAN%TA PCOUTSIDE FARMLOAN%TA
INT 0.465 1.137 0.621 1.336
(<0.001) (0.334) (<0.001) (0.262)
FARMLOAN%TA 0.009 0.001
(0.358) (0.914)
LNTA 0.006 -0.053 0.006 -0.051
(0.378) (0.402 (0.392) (0.426)
BDINDEX 0.584
(0.348)
PCOUTSIDE 0.132
(0.836)
TOTRCAR -3.882 -3.913
(0.249) (0.248)
N 176 176
System R-sq 0.011 0.006
Bank Balance Sheet/income Statement Variables represent values
of 1997. P-values reported under coefficients.
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