Discussion of “The value of executive director heterogeneity in banking: Evidence from Appointment Announcements ” Günseli Tümer-Alkan VU University Amsterdam Conference "Diversity in Boards" De Nederlandsche Bank, 19-20 December 2013
Overview • Important question: how does executive director heterogeneity affect performance? (see Yermack, (2006) for a survey on board appointments) • Contribution: – empirical evidence on the value of executive director characteristics in the US banking sector – take other executives into account – focus on exogenous variation in director turnover
What the paper does • Event study on director appointments • Examine whether the stock market reaction to the appointment announcement is affected by director characteristics – Exclude appointments driven by endogeneous factors – Focus on single and external appointments & take care of selection bias
Main Results • Positive CARs for selected event windows – Human capital is valuable for US banks • Director characteristics do explain CARs – Age, Education and Experience => positive reaction – Gender, other industry experience, PhD do NOT matter – Busyness => negative reaction • Performance effect – Reduced with independent boards – Stronger for CEOs
Main comments • The analysis shows that the CEO is still the most important one among executives. • Hypotheses development not clear. – No justification of the choice among opposing predictions. – Even busyness is expected to create shareholder wealth. • Carefully executed empirical study – seems to consider most possibilities – No sign of omitted board/director variables – Arbitrary choice of event windows – Instrument in the selection model…
Event study • Planned appointments after retirements or death – does not rule out market’s reaction! – When is the departure of the previous director? • Always after day -46? • Choice of event windows: – Market reactions data with: [-1, +1], [0, +4], [0, +5] – Univariate statistics and regressions with [+1, +3] – Robustness with [0, +3] and [0, +4] – Any specific reason? – Window not clearly stated when explaining CARs. • Wording issue
Explaining announcement returns • Selection model – Is institutional ownership a good instrument? – It may affect returns through board independence or influencing CEO power – Sufficient to check correlation with CARs? • Age was insignificant too – Inverse Mill’s ratio significant once • Suggested bank controls – Structure of liabilities; maturity, retail/wholsale funding, uninsured (interbank deposits), – NPL – Liquidity
Moderating effects • I like this part the most. • Maybe extend? • Interaction with blockholder – This may work against the choice of the instrument though…
Policy implications • Policy implication on gender: “ …pressure to increase more female representatives in the executive team has no empirical foundation in terms of shareholder wealth creation. ” • Is this really what we learn from the results?
Summing up • Important question with policy implications • Well written paper • Well executed empirical study • Looking forward to reading the next version.
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