Date of Award
4-28-2014
Degree Type
Dissertation
Degree Name
Doctor of Business Administration (DBA)
Department
Accountancy
First Advisor
Dr. Divesh S. Sharma
Second Advisor
Dr. Vic Naiker
Third Advisor
Dr. Zhongxia (Shelly) Ye
Abstract
The catastrophic impact of the recent financial crisis on the banking industry reverberated throughout the United States and had contagion effects worldwide. Congressional inquiries, media scrutiny, and the public alleged failure of the boards of directors to effectively discharge their governance responsibilities. The objective of this study was to investigate how certain characteristics of directors on a bank‘s board are related to bank failure—specifically whether the presence of directors with banking industry–specific experience and accounting expertise is related to a bank‘s likelihood of failure. The study also examined how board director tenure is related to bank failure.
I employed a matched-pairs design of 65 failed and 65 nonfailed U.S. commercial banks between 2008 and 2011. Matching was based on age, size, and geographic markets. Logistic regression was used to analyze the hypothesized associations.
At the board level, I found a statistically significant and negative association between director tenure and bank failure, supporting the resource dependence perspective. I found no significant association between bank work or bank director experience and bank failure. At the audit committee level, I found positive and significant relationships among bank work experience, bank director experience, and bank failure, suggesting overconfidence among audit committee members. Results for accounting expertise indicated that presence of a director on the audit committee that previously worked as a chief financial officer, vice president of finance, or controller without a CPA designation (POTACCTG) was significant and negatively associated with bank failure. The average tenure of audit committee members was negatively and significantly associated with bank failure, and the interactions between tenure and the two categories of accounting expertise were also negatively and significantly related to bank failure. Together, these results provide support for the expertise hypothesis: As directors gain industry- and bank-specific knowledge during their tenure, they are able to provide more effective oversight and prevent their banks from failing.