BOARD COMPOSITION AND RISK TAKING AFTER THE FINANCIAL CRISIS: EVIDENCE FROM U.S. BANKS45405

BOARD COMPOSITION AND RISK TAKING AFTER THE FINANCIAL CRISIS: EVIDENCE FROM U.S BANKS Tu Tran Thi Thanh*, Minh Doan Duc, Dong Dao Phuong, Linh Nguyen Khanh Vietnam National University Hanoi ABSTRACT In the paper, the authors investigate the relation between the change of board composition and risk taking in banking industry pre and post the financial crisis in the US and the influence of board composition on the risk taking behavior of U.S banks The sample includes US banks over the period 1998-2018 The authors measure bank risk at both the bank and industry levels and include: (i) Non-performing asset ratio; (ii) The portion of equity to total assets; (iii) The volatility of bank stock return (individual bank risk) and Z-score (whole bank industry risk) The bank governance measures include board composition and CEO gender, age, and busyness Research analysis indicates that after the 2008 crisis, the level of bank risk increases relative to that in the pre-crisis period Research results also show that the larger the number of directors and the fewer female in the management team, the more risk that banks face in overdue loans recovery The authors also find a significant non-linear relation between CEO busyness and bank risk, indicating that if a CEO busyness is at a moderate level, bank risk level appears to be lower However, if CEO busyness exceeds a certain threshold, it is associated with more risk, expressed through parabolic relationship between these factors US bank risks also relate significantly to the gender of the Chair of Audit Committee, CEO compensation and CEO age At the industry level, medium size bank, lower CEO ownership, and female Chair person appear to be associated with lower bank risk * Corresponding author Email address: tuttt@vnu.edu.vn Green financial system in Vietnam - Challenges and impacts on the economy INTRODUCTION Corporate governance has attracted substantial academic research interests, particularly in the area of board of directors composition Akbar et al (2017) argues that financial crisis is an important factor that exposed the deterioration in corporate governance in different economies U.S financial crises have a considerable impact on the U.S companies, its financial markets, and the global economy At the beginning of the 21st century, there were two unforgettable events: The first was the terrorist attack on September 11th, 2001, and the second was the global financial crisis with the collapse of Lehman Brothers in 2008 Lehman Brothers, a major global investment bank that had been on Wall Street for more than 150 years, filed for the largest bankruptcy in U.S history on September 15, 2008 The 2008 financial crisis is the worst economic debacle since the Great Depression of 1929 The bad news shocked many investors who believed that the U.S government would act to prevent a big bank like Lehman from failing Nevertheless, U.S Treasury and Fed leaders were concerned that bailing out Lehman would cause “moral hazard” in the banking industry (Erkens, Hung, & Matos, 2012), leaving the U.S economy in trouble Post-crisis research provides empirical evidence of Board of Directors’ responsibilities in causing the financial crisis, which could be explained by weak shareholders’ rights and short-term profit obsession rather than a long-term focus (Boyd et al., 2011; Erkens et al., 2012) Ntim, Lindop & Thomas (2013) suggest that risk management mechanism deserves close attention after the crisis, especially with respect to the board composition Generally, banks approach risk management in a way that is different from non-financial organizations Ahmed, Sihvonen & Vähämaa (2019) suggest the influence of regulations, supervision, and society on bank risk taking The global financial crisis in 2008 marked a dramatic change in regulatory deficiencies and policy (Barth et al., 2013), and bank risk taking has been affected by the Basel III regulation establishment and the Dodd-Frank Act in the United States In addition to macroeconomic factors, board characteristics also affect bank risk taking Hambrick & Mason (1984), Cronqvist, Makhija, & Yonker (2012) and Graham, Harvey, & Puri (2013) verified above hypothesis with board features, such as gender, experience, age etc… Jorg et al (2018) evaluate that hiring external audit committee reduces bank risk especially under systematic banking crisis However, there is little research on the influence of board composition, which includes board and top executive characteristics, on bank risk taking Bank risk taking should be assessed in overall market risk and private bank risk In this study, we construct variables measuring bank risks including the Z-Score for US bank market risk and primary leverage and bad debt ratio for private bank risk We employ linear and Probit regression models to analyze the relations between board composition and bank risk taking Our analysis attempts to answer the following questions about the dramatic change in corporate governance mechanism in US banking sectors after the 2008 financial crisis How was firms with different board compositions influenced in the financial crises? To what extent does the board’s risk-taking preference influence the bank’s performance? Board composition plays 96 Vietnam National University - University of Economics and Business an important role in the company’s success Also, board’s risk taking will impact to company profitability Then, board composition needs to be good at managing risks while maximizing the company’s profit (Aebi, Sabato & Schmid, 2012) However, these questions must be examined in the banking system, especially after the 2008 financial crisis In this study, we investigate the relation between the change of board composition and risk taking in banking industry pre and post the financial crisis in the US and the influence of board composition on the risk taking behavior of U.S banks Our sample includes US banks over the period 1998-2018 We measure bank risk at both the bank and industry levels and include: (i) Non-performing asset ratio; (ii) The portion of equity to total assets; (iii) The volatility of bank stock return (individual bank risk) and Z-score (whole bank industry risk) Our bank governance measures include board composition and CEO gender, age, and busyness Our analysis indicates that after the 2008 crisis, the level of bank risk increases relative to that in the pre-crisis period Our results also show that the larger the number of directors and the fewer female in the management team, the more risk that banks face in overdue loans recovery We also find a significant non-linear relation between CEO busyness and bank risk, indicating that if a CEO busyness is at a moderate level, bank risk level appears to be lower However, if CEO busyness exceeds a certain threshold, it is associated with more risk, expressed through parabolic relationship between these factors US bank risks also relate significantly to the gender of the Chair of Audit Committee, CEO compensation and CEO age At the industry level, medium size bank, lower CEO ownership, and female Chair person appear to be associated with lower bank risk The remaining of the paper proceeds as follows Section II reviews literature on bank risk taking and board composition in U.S banking sector Section III provides empirical models to examine the relations between board composition and bank risk taking before and after the 2008 global financial crisis Section IV presents research results and discussions and the final Section V concludes that paper LITERATURE REVIEW ON CORPORATE GOVERNANCE AND RISK TAKING IN BANKS 2.1 Corporate governance and board composition Theories on corporate governance have been studied since decades before The first theory is the agency theory Agency theory gives the reason for a board’s important function of surveilling management on behalf of shareholders (Leonhardt, 1989; Fama and Jensen,1983) and suppliers, customers, and other boards (Mateo’s de Cabo, Gimeno & Nieto, 2011) While the board is the most essential internal control mechanism for advocating and defending shareholder’s interest, it can only satisfy this surveilling role when it furnishes high-quality, unprejudiced advice (Mateo’s de 97 Green financial system in Vietnam - Challenges and impacts on the economy Cabo, Gimeno & Nieto 2011) A usual assumption in agency theory is that outside directors are more independent of the chief executive officer (CEO) and will be as better monitors than their insider counterparts (Mateo’s de Cabo, Gimeno & Nieto 2011) Calomiris and Carlson (2016) state that agency problems occur regarding the outright transfer of resources (e.g., superfluous incomes or sponsored access to credit) and implicit transfers concerning risk management practices (e.g., insufficient risk management effort or transfers from creditors to stockholders through risk shifting) Moreover, the authors indicate that some risk shifting turns to managers’ advantage at the expense of all claimants on the bank, while other forms of risk shifting profit stockholders at the expense of creditors Bankers create contracting and governance structures that adequately solve agency problems so that they can entice funding from minority shareholders and depositors (Calomiris and Carlson, 2016) The most elementary class of agency problems unravels around the transfer of resources to insiders who maintain operational control over the bank Bank managers with satisfactory control rights can pay themselves exorbitant salaries or give themselves access to credit on subsidized terms (Calomiris and Carlson, 2016) In addition, control rights can also result in agency issues with respect to risk management, presuming differences in portfolio option, as modeled by Jensen and Mackling (1976), Myers (1977), and Merton (1977) or differences in risk-management effort, as modeled by Holmstrom and Tirol (1997) (Calomiris and Carlson, 2016) More importantly, managers who have big stakes in the performance of their banks could prefer to take less risk or to put more effort in controlling risk to keep their own financial opulence or their firm-specific human capital [see the discussion in Demsetz, Seidenberg, and Strahan (1997) and Laeven and Levine (2009) The other considerable theory is gender role theory This theory states that ‘empathic caring’ reactions to help will be stronger in women than in men (Boulouta, 2012) More gender-diverse boards with more women directors presenting the female gender stereotype will be more likely to show empathy-based responses to Corporate Social Responsibility (CSR) issues (Boulouta, 2012) (Miller & Triana, 2009) introduces signaling theory and behavioral theory Signaling theory states that the make-up of the board of directors can function as a signal to investors about the robustness of the governance mechanisms in place and the quality of the company The authors of the behavioral theory of the firm claims that the extensiveness of the search and decision-making processes can impact innovation in organizations According to (Kang, Cheng & Gray, 2007), board diversity is a variety in the composition of the Board of Directors There are two types of diversity: observable diversity which is readily palpable features of directors such as race/ethnic background, nationality, gender and age and less visible diversity like educational, functional and occupational backgrounds, industry experience and organizational membership (Kang et al., 2007) Board structure has two dimensions: board size and board composition (Adusei 2011), (Boulouta, 2012), (Mateo’s de Cabo, Gimeno & Nieto, 2011), and (Joecks, Pull & Vetter, 2012) have done substantial research on gender diversity, board of 98 Vietnam National University - University of Economics and Business directors and firm performance More notably, (Miller & Triana, 2009) and (Kang et al., 2007) explore diversity in corporate governance and board composition pains takingly (Adusei, 2011) investigates board structure and bank performance in Ghana (Lu & Boateng, 2017) examine board composition, monitoring and credit risk in the UK banking industry They all agreed that the diversification of board will reduce the credit risk in banks 2.2 Board composition and risk taking in banks Lots of literature has been done on corporate governance and risk-taking in banking industry Most Recently, (Faleye &Krishnan, 2017), (Battaglia & Gallo, 2016), (Chen & Ebrahim, 2018), (Anginer et al., 2018), (Calomiris & Carlson, 2016) and (Kutubi et al., 2017) did extensive research on board composition and risk-taking (Korkeamaki, Liljeblom & Pasternack 2017), (Husted & Sousa-Filho, 2018), (Diaz & Huang, 2017), (Baldenius, Melumad & Meng, 2013), (Frye & Pham, 2017), (Diallo 2017) and (Sakawa & Watanabel, 2017) studied on the corporate governance, board structures and performance and CEO power Faleye and Krishnan in 2017 did research on the influence of corporate governance on risky lending Faleye and Krishnan 2017 studied the effect of bank governance on risk-taking in commercial lending They found that banks with more potent boards are less likely to lend to riskier borrowers Banks with more beneficial boards are less likely to lend to riskier borrowers right after the Russian default, which exogenously caused jeopardizing conditions on U.S banks Also, value-maximizing banks seem to ration credit to riskier borrowers accurately when such companies might be credit-constrained, indicating that bank governance regulations may have potential inadvertent outcomes (Faleye & Krishnan, 2017) Inside directors’ busyness has a notable effect on bank performance and risktaking while independent directors’ busyness does not have a meaningful effect on performance and risk-taking (Kutubi, Ahmed & Khan, 2017) They calculate the optimal level of busyness where the reputation hypothesis overpowers the over-boarding hypothesis at less than the optimal level of busyness and vice versa (Kutubi, Ahmed & Khan, 2017) Therefore, they can accommodate the mixed evidence in the literature on the relationship between busyness and risk-taking in India Banks Battaglia & Gallo (2016) examined the influences of board composition and ownership on traditional measures of bank risk and proxies of bank tail and systemic risk Both banks’ corporate governance weaknesses and systemic risk-taking have been realized among the potential causes of the 2007 financial crisis (Battaglia & Gallo, 2016) Based on a sample of 40 European banks over the period 2006-2010, the authors found that the boards ‘characteristics affect banks’ systemic risk, except for board independence and that this relation depends on capital policies, banking systems’ ownership structures and bank activity constraints (Chen & Ebrahim, 2018) conducted their research on how the threat of turnover affects bank CEO’s risk-taking behavior Using a sample of 212 U.S banks from 1995 to 2010, in contrast with prior studies concentrating on non-banking firms, they found a non-monotonic relationship between CEO turnover threat and CEO risk-taking behavior in the banking industry 99 Green financial system in Vietnam - Challenges and impacts on the economy Bank CEOs raise their risk-taking when the perceived turnover threat is moderate but decrease risk-taking when turnover threat is more forthcoming (Chen & Ebrahim, 2018) Anginer et al., (2018) accredit their findings by comparing banks to nonfinancial firms and observing changes in bank risk around an exogenous regulatory change in governance Their conclusions emphasize the significance of the financial safety net and too-big-to-fail guarantees in perceiving corporate governance reforms at banks (Anginer et al., 2018) (Calomiris & Carlson, 2016) scrutinize bank governance and risk choices from the 1890s, a period without deformations from deposit insurance or other government help for banks They connect differences in managerial ownership to different corporate governance policies, risk and methods of risk management More significantly, “formal corporate governance and high manager ownership are negatively correlated” They found that banks with high managerial ownership (low formal governance) will focus on lower default risk High managerial ownership, not formal governance involves greater reliance on cash instead of equity to control risk (Calomiris & Carlson, 2016) Furthermore, a considerable number of recent studies discover that compensation sensitivity to firm performance is important for risk taking and that when the executive’s salary is more sensitive to risk-in our case, when it is more dependent on dividendsthe bank’s investments seem to be riskier (Bai and Elyasiani, 2013; Cheng, Hong, and Scheinkman, 2013) (Calomiris & Carlson, 2016) (Calomiris & Carlson, 2016) explore that having a higher proportion of the president’s compensation in the form of salary (not dividends) is connected with having a higher proportion of loans related to real estate and having bigger predicted losses These consequences lead to greater risk taking when compensation is less due to profits More significantly, chosen formal governance structures leads to more risk and more relative dependence on capital for risk management but lower managerial incomes (Calomiris & Carlson, 2016) More interestingly, the total proportion of loans made to insiders (officers and outside directors) is not influenced by the structure of ownership or governance but ownership and oversight have a great effect on which insiders obtain those insider loans (Calomiris & Carlson, 2016) By linking ownership structure and corporate governance selections to banks’ risk proclivities and their balance sheet options, they can see how ownership and governance transformed bank portfolio structure, performance and collapse probabilities during the Panic of 1893 (Diaz & Huang, 2017) probe the influence of internal bank governance on bank liquidity creation in the U.S before, during and after 2007-2009 financial crisis Using bank holding company level data, they assay whether better-governed banks create higher levels of liquidity (Diaz & Huang, 2017) They found that this effect is positive and momentous but only for large bank holding companies Further analysis shows that specific internal governance categories: CEO education, compensation structure, progressive practices, and ownership have a valuable effect on bank liquidity (Diaz & Huang, 2017) However, this positive effect happens mostly during the crisis period and for big banks that are also high liquidity creators Eventually, they discovered that the effect of governance on liquidity creation rises during the crisis period 100 Vietnam National University - University of Economics and Business Sakawa & Watanabel (2017) evaluate the relation between board size and composition and firm performance for the Japanese banking industry during 2006-2011 Their results for the banking industry divulge that the advisory and monitoring roles of larger boards and outside directors are futile Results also indicate that banks which received taxpayer funds cannot rennovate their board structure and that taxpayer funds not buttress the advisory role of outside directors Diallo (2017) looks into the effects of bank concentration and corporate governance among firms in terms of economic growth using panel data for 34 countries and 29 manufacturing sectors over the period 1980-2010 They show the following results: First, bank concentration has a negative effect on development for industries that are most reliant on external financing (Diallo 2017) However, for countries with a high level of corporate governance bank concentration is less deleterious to economic growth Their results have paramount policy implications for emerging markets Most crucially, they propose that high corporate governance is an essential means for promoting growth and opulence in developing and emerging economies, in which they commonly examine under-developed financial sessions and high levels of bank concentration (Diallo 2017) Frye & Pham (2017) did their research on the CEO Gender and corporate board structures The number of female executives has risen dramatically in recent years They verify that female CEOs are associated with smaller boards that are more independent, more gender diversified, have a lower ratio of inside to outside directors, a broader director network, and younger directors They also gather these individual board characteristics to apprehend the overall monitoring potential of the board (Frye & Pham, 2017) Their findings are undeviating with the notion that boards of female CEOs are structured for more monitoring Their results reveal that divergences in board structures between firms led by male versus female CEOs can at least be partially clarified by gender-based behavioral variances Adusei, (2011) examines the relationship between board structure and bank performance with panel data from the banking industry in Ghana Controlling for bank age, size, funds, ownership structure and listing status, the research shows that the smaller the size of a bank’s board of directors becomes, the more lucrative the banks will be In addition, an increase in bank board independence will lead to a decrease in bank efficiency (Lu & Boateng, 2017) studies the influences of board composition and monitoring on the credit risk in the UK banking industry The paper discovers that CEO duality, pay and board independence have a positive and significant effect on credit risk of the UK banks Nevertheless, board size and women on board have a negative and significant influence on credit risk (Lu & Boateng, 2017) The research indicates the effectiveness of the within-firm monitoring arrangement, especially the effects of CEO power and board independence on credit and thus contributing significantly to the agency theory (Miller & Triana, 2009) investigates mediators that indicate how board diversity is related to firm performance According to the signaling and behavioral theory of the firm, they recommend that this relationship utilize two mediators: firm reputation and innovation (Miller & Triana, 2009) In a sample of Fortune 500 firms, they find 101 Green financial system in Vietnam - Challenges and impacts on the economy a positive relationship between board racial diversity and both firm reputation and innovation More remarkably, they find a positive relationship between board gender diversity and innovation (Miller & Triana, 2009) (Kang et al., 2007) peruse corporate governance and board composition: diversity and independence of Australian boards The board of directors is one of a number of internal governance mechanisms that are expected to assure that the interests of shareholders and managers are closely matched, and to train or get rid of inefficacious management teams (Kang et al., 2007) This paper reports on the diversity and independence of the board membership of 100 top Australian firms in 2003 (Kang et al., 2007) (Mateos de Cabo, Gimeno & Nieto, 2011) investigates the gender diversity of the corporate board of European Union banks They employ a large sample of 612 European banks from 20 European countries (Mateos de Cabo et al., 2011) They identify three factors that play a specifically crucial role in establishing a concept for bank board gender diversity First, “the proportion of women on the board is higher for lower-risk banks” Second, banks with bigger boards have a higher proportion of women on their boards, which could be seen as a signal of some kind of proclivity for homogeneity on small boards (Mateos de Cabo et al., 2011) And finally, banks that have a growth orientation are more likely to encompass women on their board because they may be regarded as suppliers of diverse external resources that are more appreciated by companies operating under critical conditions (Mateos de Cabo et al., 2011) From the literature review, most of authors find the common results that board composition have certain and bank’s risks exit a relationship, however with the different coefficients, depending on the economy and social development Some researches focus on testing the correlation of board composition on bank performance or bank risk in UK, US or Asian countries Others try to investigate the determinant of bank risks and their impact on bank performance after the 2008 financial crisis Up to now, there is no research on the impact of board composition on risk taking of U.S banking in the period of pre and post of the 2008 global financial crisis The findings will be supported for agency theory and risk theory in banking and finance field DATA SOURCE, VARIABLES AND EMPIRICAL METHODS 3.1 Samples and data sources The authors collected data on most popular US banks over 20 years, 1998-2018, with the aim to investigate the banking industry’s pre- and post-crisis differences The banks’ financial information included total assets, total equity, loans, bad debt and typical indicators such as non-performing loans and loan loss provisions This data can be collected directly from the Compustat database and Capital IQ from Standard & Poor’s In addition, the research focused on exploiting the board composition effect on the risk taking of the U.S banks that required data resources from Directors and Director Legacy databases of Institutional Shareholder Services (ISS), which provides a universe of individual board information of S&P 1,500 companies (name, age, 102 Vietnam National University - University of Economics and Business tenure, gender, committee memberships, primary employer and title, etc.), along with the Execucomp compensation reports Moreover, The Center for Research in Security Prices (CRSP) synthesized the volatility of US bank stocks over the years Another important indicator of measured bank risk is Z-score (Laeven & Levine, 2009), which demonstrates the bankruptcy level observed in the banking industry This research also applies the score from the Federal Reserve Economic Data (FRED) of the Federal Reserve Bank of St Louis After the authors handled missing and error data in the consolidation process, the research sample was finally built with 213 banks and 2,536 CEO observations through the 20 years period from 1998 to 2017 Data was collected from public held banks located in the US through a reliable source (Wharton Research Data Service) and based on this condition, almost all the largest traditional and investment banks were covered Table presents the characteristics of the data sample Table Sample Database Criteria Criteria Sample Total Total banks in sample 213 U.S banks Average bank size 132,279 million USD in assets Largest bank size 2,573,126 million USD - JPMorgan Chase & Company 2014 Smallest bank size 908 million USD - Brookline Bancorp 1999 Year 2017 Average bank size 188,603 million USD in assets Largest bank size 2,533,600 million USD - JPMorgan Chase & Company Smallest bank size 2,228 million USD - Home BanCorp Inc * Based on final sample consisting of full information of all indicators in this research 3.2 Measurement of variables 3.2.1 Measures of risk taking Table Risk Taking Variables Variables Previous Research Individual Bank risk (1) Non - Performing Asset Ratio Boudriga et al (2009); Gonzalez (2005) (2) Total Liabilities/ Total Asset Boyd & De Nicolo (2005); Gambacorta & Mistrulli (2004); Berger et al (2009) (3) Volatility of Stock Return Kutubi et al (2018); Pathan (2009) Obviously, there are many variables that measure the risk taking of individual banks according to previous research, especially some typical groups that are frequently used: 103 Green financial system in Vietnam - Challenges and impacts on the economy (i) Leverage level measurement (ratio of common equity to total assets, ratio of loans to total assets); (ii) Risk measurement (annualized stock return volatility, ratio of non-performing assets); (iii) Conventional ratio (loan loss provision, non-performing loan ratio, cash to total assets) In addition, recent publications have developed new approaches to risk taking through portion loans to related parties or through market risk of bank stocks (Saghi-Zedek & Tarazi, 2015; Kutubi et al., 2018) With the database accessed and market availability, the authors built measurements of individual bank risk taking: (i) Non-performing asset ratio; (ii) The portion of equity to total assets; (iii) The volatility of bank stock return Typically, non-performing assets (NPA) refers to a classification for advances or loans that are in risk of default and as a result, higher ratio indicates higher risk taking Boudriga et al (2009) and Gonzalez (2005) indicated that non-performing assets is one of the major factors causing bank failure Non-performing assets is also compulsory to disclose regularly, accurately reflecting all fluctuations in a bank’s business situation On the other hand, a bank that acquires a higher portion of liabilities to total assets is normally assessed as a higher risk institution compared with a lower one (Boyd & De Nicolo, 2005; Gambacorta & Mistrulli, 2004; Berger et al, 2009) Excess liabilities to asset ratio can be a reason for a bank to barely control the riskiness of a lending portfolio, which consists of a proportion of bad debt borrowers Moreover, it can cause a failure in the bank capital channel with the contagion effect by mutual capital lending Moreover, one can use the volatility of stock prices to measure market risk, which is represented by annual standard deviation of 12 months of stock returns in each fiscal year Kutubi et al (2018) and Pathan (2009) pointed out that volatility captures the fluctuations and return probability of stock returns and demonstrates the market’s perception of a bank’s fundamental intrinsic risk Stock price usually represents some insider information that outside investors hardly reach frequently In addition to assessing individual bank risk, the authors intended to test the influence of board composition on the entire US bank market during a long period, with emphasis on the economic crisis of 2008 The findings of the test would be a new contribution to the literature on what are differences in the practices of U.S banks before and after the global financial crisis The Z-score of the U.S bank industry (Laeven & Levine, 2009) through 20 years is generally used to measure the risk taking of the whole banking market In this study, Z-score has been assessed to market-wide data, which is more reliable and broader and not approachable by individual banks, such as above bank risk taking indicators 104 Vietnam National University - University of Economics and Business The increase (decrease) of that score through each year corresponds to a positive (negative) risk level The authors also tested how risk taking of U.S banks changed before and after the 2008 global crisis and how these changes were impacted by board composition in banks Figure US Bank Z-Score 1996-2015 Source Federal Reserve Economic Data (Federal Reserve Bank of St Louis) Transparently, Z-Score was calculated as the total of ROA and Equity to Total Assets, all divided by the standard deviation of ROA (volatility of the return) In this data collection, ROA, Equity and Assets are used at the U.S country-level aggregate The lower Z-Score means that to generate a similar level of return, the market needed to face more volatility and more risk The 2008 crisis period represents the lowest Z-Score in the U.S banking industry through 20 years with 22.57, marking an obstacle point of the overall system After the crisis, U.S banks have improved, revised and gradually increased to reach a safer situation (Z- Score equals 29.43 in 2015) 3.2.2 Measurement of Board and CEO Characteristics Proxies of Board Characteristics are defined by variables: Board Size, Female Portion and Independent Portion First, Board Size represents the total number directors in each bank board management team, counting all executive and non-executive positions (Staikouras et al., 2007; Belkhir, 2009) Second, the study approach tested the influence of Board constituents through characteristics: Gender and Independent Variable Definitely, Female and independent directors always played key roles to contribute a good corporate governance environment (Terjesen et al, 2016; Lückerath-Rovers, 2013; Rose, 2007) Specifically, the authors used variables to measure the characteristics of CEOs who directly execute bank operations and become one of the most decisive factors for bank risk taking ability and performance Exploited characteristics included: 105 Green financial system in Vietnam - Challenges and impacts on the economy (i) CEO Busyness (hold significant number of management positions at the same time) (Elyasiani & Zhang, 2015; Milton et al., 2014; Kutubi et al., 2018); (ii) CEO Ownership (percentage of own shares) (Griffith et al., 2002; Aebi et al., 2012); (iii) CEO Age (Griffith et al., 2002); (iv) CEO Duality (CEO is also Chairman) (Kyereboah-Coleman & Biekpe, 2006; Boyd, 1995); (v) Chair of Audit is female (Nichitean & Asandului, 2010); (vi) CEO Tenure-Holding management position period (Belkhir, 2009; Griffith et al, 2002); (vii) CEO Compensation-Total compensation CEO receive each fiscal year (Brick et al., 2006) Table gives more information about characteristic descriptive analysis Especially, the PNC Financial Services group in 2010 had the largest portion of independent directors (94.12% over 17 directors) Boston Private Financial Holdings in 2016 was the leading company, which owned the largest contribution portion of female directors (55.56%) Besides, 30 directors served for UMB Financial board of directors in 2001, the largest board size in the sample Table Statistic Descriptions Variables Standard Skewness Kurtosis Deviation Range Minimum Maximum Mean 25.0 5.0 30.0 13.99 3.95 0.84 1.09 Female Portion 55.56% 0.00% 55.56% 12.38% 8.19% 0.84 1.18 Independent Portion 66.84% 27.27% 94.12% 76.95% 11.59% -0.95 1.17 CEO Busyness 1.0 0.0 1.0 0.08 0.27 3.16 7.97 Busyness 7.0 0.0 7.0 0.77 1.06 1.57 2.79 CEO Ownership 1.0 0.0 1.0 0.49 0.50 0.05 -1.99 CEO-Age Log 0.37 1.54 1.92 1.76 0.05 -0.32 0.77 CEO_Age 48.0 35.0 83.0 58.65 6.57 0.12 0.55 CEO_Duality 1.0 0.0 1.0 0.59 0.49 -0.35 -1.88 Chair of Audit Female 1.0 0.0 1.0 0.07 0.26 3.31 8.96 CEO _Tenure 43.0 0.0 43.0 11.3 8.21 1.20 1.86 Board Size CEO Characteristics also provided some impressive results Average CEO age reached 58.65 in the sample over 20 years, and the highest was 83 years old and lowest was 35 years old The significant distance in age indicates the diversity of CEO experiences in bank management Generally, CEOs in U.S banks hold their 106 Vietnam National University - University of Economics and Business positions on average 11.3 years and the longest holding period was 43 years In the samples, 58.5% of bank CEOs also acquire the Chairman position, and they can simultaneously have responsibilities with a maximum of different management positions Interestingly in the samples, just only 7% of Chair of Audit Committee were female Actually, the collected samples hardly cover all US banks and financial institutions, but they can provide some impressive identifications about Board Composition revolution after the financial crisis Firstly, the importance of females has been increments and focused in banks, by the greater the proportion of women holding the roles Chair of Audit Committee and significant improvement of female proportion in the Board team (from 10.68% to 15.38%) Secondly, the number of Board members dropped, about 12 individuals per team after 2008, along with improvements in promoting the role of Independent Directors Last but not least, concurrently holding many positions in other institutions of Board member is also controlled and remained low after the crisis Moreover, the percentage of Chairman holding the CEO position is reduced through Duality Characteristic Pre and Post Crisis data (Figure 2) Figure Average value of Board Composition in samples: Pre - Post Crisis Comparison 3.2.3 Control Variables From the literature review, it was found that the 2008 financial crisis had significant impact on banks’ performance all over the world However, to the authors’ knowledge, no research has studied the impact of the 2008 crisis on U.S bank risk taking or board composition This study used the 2008 financial crisis as control variables for regression models Tests of the differences between pre and post crisis pointed out the significant results in risk taking of U.S banks in the before and after crisis period A financial crisis dummy was included in the model Besides, a bank size variable was used to control the diversity in the ability to take risk 107 Green financial system in Vietnam - Challenges and impacts on the economy Table Summary of Variables Variables Calculation Previous Research Dependent Variable (i) Non - Performing Ratio of total non - performing assets to total Boudriga et al (2009); Asset Ratio assets Gonzalez (2005) (ii) Total Liabilities/ Ratio of total liabilities to total assets Total Asset Boyd & De Nicolo (2005); Gambacorta & Mistrulli (2004); Berger et al (2009) (iii) Volatility of Stock Annual standard deviation of stock return Return Kutubi et al (2018); Pathan (2009) Board Characteristic Staikouras et al (2007); Belkhir (2009) Board Size Total number of Board members Female Portion Ratio of number of female board members to Lückerath-Rovers (2013); total number of board members Rose (2007) Independent Portion Ratio of number of independent board memTerjesen et al (2016) bers to total number of board members CEO Characteristic Elyasiani & Zhang (2015); Minton et al (2014); Kutubi et al (2018) CEO Busyness Management position CEO hold at same time CEO Ownership Indicator variable equal to one if CEO owns Griffith et al (2002); Aebi et more company stock at the end of fiscal year, al (2012) compared with beginning of fiscal year CEO Age Logarithm of CEO age CEO Duality An indicator variable that is equal to when K y e r e b o a h - C o l e m a n a CEO is the Chairman of the board and & Biekpe (2006); Boyd otherwise (1995) Griffith et al (2002) Chair of Audit Indicator variable equal to when Chair of Au- Nichitean Committee is Female dit Committee is Female and otherwise (2010) & Asandului CEO Tenure Length of time (in years) a CEO served in bank Belkhir (2009); Griffith et as Chief Executive Officer, logarit value al (2002) CEO Compensation Total compensation in fiscal year of CEO Brick et al (2006) Control Variable 2008 financial crisis An indicator variable equal to when period after financial crisis 2008 and otherwise Bank Size Total bank assets 3.3 EMPIRICAL METHODS Research on the correlation and mutual influence of many elements should be managed by the regression method approach Logically, depending on the 108 Vietnam National University - University of Economics and Business characteristics, properties of each data set and distribution of independent and dependent variable values, the model was constructed differently for hypothesis testing Based on the developed theory, the authors built models to test: (i) Influence of board composition on individual bank risk taking; (ii) Bank industry market risk The paper approached some quantitative tests based on the following regression equation, which covers all the above potential variables: Risk taking = a + Σβi * Board Characteristici + Σβi * CEO Characteristicj + Σβk * controlsk + et Specifically, with individual bank risk taking, the model applies linear regression with dependent variables: (i) Non-performing asset ratio; (ii) Total liabilities/total assets; (iii) Colatility of stock return This estimation method is reasonable because of the normal distribution feature in testing (Figure 2) Besides, the independent variables were constructed based on the proposed variables above; especially, CEO Busyness factor would be expected to have a nonlinear correlation, so the authors added CEO Busyness to adapt with the requirement NPA = 𝛽𝛽" +𝛽𝛽# *Boardsize +𝛽𝛽$ *FemalePor + 𝛽𝛽% *IndPor + 𝛽𝛽& *Busyness + 𝛽𝛽' *Busyness $ + 𝛽𝛽 * Ownership + 𝛽𝛽/ * Age + 𝛽𝛽0 *Duality + 𝛽𝛽1 *Audit + 𝛽𝛽#" *Tenure (1) + 𝛽𝛽## *Compensation + 𝛽𝛽#$ *Crisis + 𝛽𝛽#% *Banksize LIA = 𝛽𝛽" +𝛽𝛽# *Boardsize +𝛽𝛽$ *FemalePor + 𝛽𝛽% *IndPor + 𝛽𝛽& *Busyness + 𝛽𝛽' *Busyness $ + 𝛽𝛽 * Ownership + 𝛽𝛽/ * Age + 𝛽𝛽0 *Duality + 𝛽𝛽1 *Audit + 𝛽𝛽#" *Tenure (2) + 𝛽𝛽## *Compensation + 𝛽𝛽#$ *Crisis + 𝛽𝛽#% *Banksize VOL = 𝛽𝛽" +𝛽𝛽# *Boardsize +𝛽𝛽$ *FemalePor + 𝛽𝛽% *IndPor + 𝛽𝛽& *Busyness + 𝛽𝛽' *Busyness $ + 𝛽𝛽 * Ownership + 𝛽𝛽/ * Age + 𝛽𝛽0 *Duality + 𝛽𝛽1 *Audit + 𝛽𝛽#" *Tenure (3) + 𝛽𝛽## *Compensation + 𝛽𝛽#$ *Crisis + 𝛽𝛽#% *Banksize Bank industry risk Z-Score = 𝛽𝛽" +𝛽𝛽# *Boardsize +𝛽𝛽$ *FemalePor + 𝛽𝛽% *IndPor + 𝛽𝛽& *Busyness + 𝛽𝛽' *Busyness $ + 𝛽𝛽 * Ownership + 𝛽𝛽/ * Age + 𝛽𝛽0 *Duality (4) + 𝛽𝛽1 *Audit + 𝛽𝛽#" *Tenure + 𝛽𝛽## *Compensation + 𝛽𝛽#$ *Crisis + 𝛽𝛽#% *Banksize 109 Green financial system in Vietnam - Challenges and impacts on the economy Non-performing assets ratio Equity/ Total Asset Figure Distribution of dependent variables Non-performing assets ratio Equity/ Total Asset Figure Observation cumulative probability REGRESSION RESULTS AND DISCUSSIONS 4.1 Influence of board composition on individual bank risk Regression model (1) and (2) exhibit high reliability with remarkable R, R Square and Adjusted R Square level, greater than 0.5 Testing of F-test is significant, indicating that the models could be perfectly appropriate with suggested research relation and quantitative regulation Besides, regression results proved that there was no existing violation of autocorrelation, multicollinearity and heteroscedasticity Transparently, various models with many kinds of risk-taking representatives can produce meaningful investigations 110 Vietnam National University - University of Economics and Business Table Regression Results Model (1), (2), (3) Non-Performing Asset/ Total Assets Model (1) Liabilities/Total Assets Volatility of Stock Return Model (2) Model (3) Panel A: Coefficient Estimates Board Size 0.004*** (0.000) -0.001*** (0.000) 0.001 (0.677) FemalePor -0.001 (0.270) 0.000** (0.05) -0.003*** IndPor 0.001 (0.173) 0.00006 (0.139) 0.001* Busyness -0.04*** (0.000) 0.001 (0.212) 0.008*** (0.000) 0.001 (0.636) (0.333) 0.005 (0.539) -0.002*** (0.019) 0.006 (0.327) -0.226*** (0.006) -0.02*** (0.038) =0.186*** (0.003) Duality -0.01 (0.201) 0.00006 (0.951) -0.008 (0.199) Audit -0.036* (0.016) 0.007*** (0.000) -0.033*** (0.004) Tenure 0.008 (0.542) -0.002 (0.214) -0.005 (0.641) Compensation -0.028*** (0.000) 0.04*** (0.000) -0.022*** (0.000) Crisis 0.023*** (0.002) 0.003*** (0.000) 0.021*** (0.000) Bank Size -0.294*** (0.000) 0.068*** (0.000) 0.148*** (0.000) Constant 0.702*** (0.000) -0.051*** (0.003) 0.551*** (0.000) R 0.711 0.875 0.339 R Square 0.506 0.766 0.115 Adjusted R Square 0.504 0.765 0.110 Sig F change 0.000 0.000 0.000 198.883 634.927 25.135 0.39 0.950 0.681 Ownership Age (0.000) (0.059) -0.004 (0.516) 0.002 Panel B: Model fit F Durbin Watson Superscripts ***, **, *, represent significance level at 1%, 5% and 10% respectively In particular, significant value of crisis control variables in all testing models performed a reality of crisis impact on the U.S banking system After the crisis in 111 Green financial system in Vietnam - Challenges and impacts on the economy 2008, the level of risk taking of the banks was greater than in the pre-crisis period This finding was supported by Battaglia and Gallo (2016) when investigating 40 European banks over the period 2006-2010 after the crisis 2008 They found that the banks’ systemic risk in European banks increased in the period of 2008-2010 in comparison with the period of 2006-2008 This showed that the 2008 crisis had a certain impact on bank risk taking Actually, each separate model provided its own significant results, and all together contributed to the research findings among three Board Characteristic measures, Board Size played the most important role in deciding bank risk taking Obviously, the research results showed that the larger the number of directors in the board management team, the more probabilities banks face in risks of overdue loans recovery This finding is supported by (Husted & Sousa-Filho, 2018) when they tested their hypotheses about the influence of board size, women on board, CEO duality, and independent directors on Environment, Social and Governance (ESG) disclosure, using a four-year panel collected from the Bloomberg and Capital IQ databases They revealed that board size and independent directors influenced ESG disclosure positively, but women on the board and CEO duality impacted ESG disclosure negatively (Husted & Sousa-Filho, 2018) Sakawa & Watanabel (2017) evaluated the relation between board size and composition and firm performance for the Japanese banking industry during 2006-2011 Their results for the banking industry divulge that the advisory and monitoring roles of larger boards and outside directors are futile (Sakawa & Watanabel, 2017) The research showed that the smaller the size of a bank’s board of directors becomes, the more lucrative the banks will be (Adusei, 2011) Besides, Yeung & Lento (2018) unearthed that board structure was not significantly associated with stock price crash risk They also delved into whether or not a Chinese firm’s ownership structure, audit quality and board structure were associated with its future stock price crash risk Model (3) showed that the more females in the Board management team, the less volatile the bank return became Firstly, this finding confirms with Miller & Triana (2009) and Kang et al (2007), stating that Board Gender Diversity will mitigate bank risk Secondly, Mateos de Cabo, Gimeno & Nieto (2011) provided more details that the proportion of women on the board is higher for lower-risk banks Originated from differences in psychology and economic behaviors, since long time ago, women have been considered to be more risk averse than men (Barber & Odean, 2001) This hypothesis can be obviously explained that women gradually have longer life expectancies, less confident characteristic and conservative trading preferences (Faff, Mulino, & Chai, 2008; Grable, McGill, & Britt, 2009; Neelakantan, 2010) Previous research articles emphasized the role of female in reducing variety kind of risk, such as insolvency risk (Wilson & Altanlar, 2009) M&A contract risk (Levi et al., 2014) and loan loss provision, repayment risk (Beck et al., 2012) Interestingly, the results in Model showed that if a CEO holds other positions at a moderate level, the risk that the bank faces will seemingly decrease, but if they exceed the optimal threshold, the busyness of the CEO will create more risk, based on the coefficient of Busyness^2 variables The study found that the influence of CEO Busyness on dependent variables was a parabolic shape with the minimum 112 Vietnam National University - University of Economics and Business value reach in a quarter Elyasiani & Zhang (2015) argued that the CEOs can embody better expertise through holding more positions and are willing to avoid the influence of risk taking on their reputation On the other hand, if CEOs become more powerful by holding too many positions in different institutions, insider information can significantly boost their risk-taking decisions Transparently, regression results in the model proves this theory The bank could maintain risk probability based on the gender of the Chair of Audit Committee and compensation of the CEO The Audit Committee especially influenced bank risk taking in this model According to Basel 3, Chair of Audit Committee should be an independent director because it will help the bank to reduce interest conflict (Basel, 2015) and then reduce the risk It can be proved clearly through Model (1) and Model (3) with the negative correlation between Chairwomen of Audit Committee and bank risk taking However, in Model (2), the research result shows that when Chair of Audit Committee is female, the bank will take more risk However, only about 7% of the banks’ sample had this characteristic It could be explained that Chairwoman seems to prefer more risk than the Chairman, especially in the Audit Committee on who has the best knowledge on risk governance and experiences The compensation variable also has the same effect as the Audit committee variables among models Generally, the more compensation the CEOs receive, the less risk the bank takes (Model and 3) In the case of considering the impact on capital structure (Model 2), the influence is seemingly not too significant with a small coefficient statistic, compared with other variables The negative coefficient of CEO Age in all these models can also be explained through CEO experience and creditworthiness in the banking industry Griffith et al (2002) indicated that younger CEOs generally work in banks, which take more risk than the average industry The less in age similarly means the less in experiences and business relationship, affecting the impressive decision Especially, among all variables, CEO Age is the most influential factor on bank risk taking and undoubtedly, U.S banks may consider adjusting the level of risk through periods based on managers’ age factors Table Residual Statistics Model 1: Non-performing Asset ratio Minimum Maximum Mean Std Deviation N -0.1002% 0.5779% 0.2278% 0.19023% 2536 Std Predicted Value -1.725 1.840 0.000 1.000 2536 Standard Error of Predicted Value 0.008 0.067 0.013 0.004 2536 Adjusted Predicted Value -0.101% 0.573% 0.227% 0.190% 2536 Residual -0.450% 1.140% 0.000% 0.187% 2536 Std Residual -2.392 6.056 0.000 997 2536 Stud Residual -2.407 6.071 0.000 1.000 2536 -0.456% 1.146% -0.000% 0.188% 2536 Stud Deleted Residual -2.409 6.115 000 1.001 2536 Mahal Distance 3.270 324.239 12.995 15.016 2536 Cook’s Distance 0.000 0.023 0.000 0.001 2536 Centered Leverage Value 0.001 0.128 0.005 0.006 2536 Predicted Value Deleted Residual 113 Green financial system in Vietnam - Challenges and impacts on the economy Model 2: Equity/ Total Asset Minimum Maximum Mean Std Deviation N Predicted Value -0.018 0.105 0.049 0.040 2536 Std Predicted Value -1.652 1.391 000 1.000 2536 Standard Error of Predicted Value 0.001 0.008 0.002 0.000 2536 Adjusted Predicted Value -0.0178 0.105 0.049 0.040 2536 Residual -0.106 0.257 0.000 0.022 2536 Std Residual -4.771 11.505 0.000 0.997 2536 Stud Residual -4.794 11.534 0.000 1.000 2536 Deleted Residual -0.107 0.258 0.000 0.022 2536 Stud Deleted Residual -4.815 11.848 0.000 1.005 2536 Mahal Distance 3.270 324.239 12.995 15.016 2536 Cook’s Distance 0.000 0.047 0.000 0.002 2536 Centered Leverage Value 0.001 0.128 0.005 0.006 2536 Minimum Maximum Mean Std Deviation N Model 3: Volatility of Stock Return Predicted Value 0743 4420 2620 05153 2536 Std Predicted Value -3.643 3.493 000 1.000 2536 Standard Error of Predicted Value 006 051 010 003 2536 Adjusted Predicted Value 0712 4440 2619 05156 2536 00000 14316 2536 Residual -.31278 1.18761 Std Residual -2.179 8.274 000 997 2536 Stud Residual -2.183 8.287 000 1.000 2536 Deleted Residual -.31394 1.19115 00003 14397 2536 Stud Deleted Residual -2.185 8.400 001 1.002 2536 Mahal Distance 3.270 324.239 12.995 15.016 2536 Cook’s Distance 000 026 000 001 2536 Centered Leverage Value 001 128 005 006 2536 4.2 The influence of Board Composition on Bank market risk Table Omnibus Tests of Model Coefficients Step Chi-square df Sig Step 158.892 13 0.000 Block 158.892 13 0.000 Model 158.892 13 0.000 The Omnibus Tests of Model Coefficients has been widely used to check the enhancement of testing model In above table, chi-square reaches 158.892 (df = 13 with significant p value (0.000), concluded an absolutely dominance of new model 114 Vietnam National University - University of Economics and Business Table Model Statistics Step -2 Log likelihood Cox & Snell R Square Nagelkerke R Square 2646.568a 0.067 0.095 a Estimation terminated at iteration number because parameter estimates changed by less than 001 (4) Dependent Variable - Risk Taking US Bank Z-Score Step (4) Dependent Variable - Risk Taking US Bank Z-Score Percentage Correct 1.0 12 680 1.7 1588 99.4 Overall Percentage 69.9 a The cut value is 500 Transparently, -2LL indicates the model fit with low testing value Independent variables can used to estimate the bank risk taking with approximately 70% reliability This significantly high reliability statistic can prove that the attribution of the model to the realistic and based on that model, the authors probably provide meaningful and practical conclusions Table Regression Result Model (4) S.E Wald df Sig 047 014 12.204 0.000 FemalePor -.006 007 635 0.426 IndPor 000 004 008 0.928 Busyness -.047 109 182 0.669 Busyness^2 017 027 404 0.525 Ownership* 186 098 3.579 0.058 Age -.254 1.025 061 0.805 Duality -.074 102 527 0.468 Audit** -.446 218 4.164 0.041 Tenure -.013 158 006 0.936 Compensation 061 044 1.876 0.171 BankSize -.034 092 139 0.709 Crisis*** 1.258 160 61.918 0.000 Constant 380 1.781 046 0.831 BoardSize*** The regression coefficient (B), the Wald statistic (to test the statistical significance) and the Odds Ratio (Exp (B)) are shown on Table for each variable category Approached through analyzing U.S bank-wide market risk, the authors again proved that financial crisis actually affected the U.S banking system The bank industry market risk reached the bottom level of stability in 2008 with the lowest Z-score and after the crisis, risk potentially decreases, presenting a safer banking environment 115 Green financial system in Vietnam - Challenges and impacts on the economy This situation creates opportunities for the growth of individual bank risk taking, which is explained by the three study models Board of managements in banks positively seek more riskier business cooperation and participate in unsecured lending and borrowing activities to generate profit New measurements in this research show if gender of Chair of Audit committee also affects the banking industry risk, and similarly for individual bank risk approach The negative correlation establishes the conclusion that Chairwomen in Audit Committee is the factor increasing industry risk A Chairwoman may prefer risk than the Chairman in a safer business environment Finally, enhancing the size of Board management in individual banks probably reduces banking industry risk This problem can be explained through mutual controlling among members, strengthening the network of relationships with a large number of individuals and synthesizing many different ideas to minimize risks (Staikouras et al., 2007; Berger et al., 2014) CONCLUSIONS AND RECOMMENDATIONS This paper developed a sufficient quantitative methodology to examine the relationship between board composition and US bank risk taking, using data before and after the 2008 financial crisis Instead of approaching only one risk measurement, this methodology extraordinarily focuses on both overall industry risk and individual bank risk, which is measured by three different indicators that represent various types of risk banks frequently opposed The authors also classify independent factors, based on previous researches, into two groups: Board Characteristic and CEO Characteristic, contributed detailed critically arguments to understand what affects risk amount Interestingly, consideration of audit committee and the 2008 financial crisis has been resolved by new variables in the model One of the most key findings of this research is the decrease of bank risk taking after the 2008 financial crisis, presenting an extremely safer banking environment The 2008 financial crisis period represents the lowest Z-Score in the U.S banking industry through 20 years with 22.57, marking an obstacle point of the overall system and after the crisis, U.S bank risks have been improved, revised and gradually increased to reach a more positive situation The impact of the crisis is predicted to make banks less willing to increase operational and financial risks, avoiding being affected significantly if there is a systemic risk and global risk through changes in economic uncertainty The results provide insights that US banks can mitigate risk through board size reduction The less directors serving in board management team is a policy that can be implemented for banks when facing many risks Research encourages US banks to increase the percentage of female directors and independent directors, which has been proved a great impact on reducing volatility in stock price Important implications for Banks concerned about CEO characteristics are also examined through research result CEO multi-tasking need to be managed in a reasonable range, not too much and too few, to maximize the efficient influence on risk Besides, Chairwoman seems to prefer more risk than the Chairman, especially 116 Vietnam National University - University of Economics and Business in the Audit Committee on who has the best knowledge on risk governance and experiences Principally, among all CEO factors, Age is the most prominent consideration on bank risk taking and undoubtedly, U.S banks electing young CEO can face with more risk These findings will help US banks in diversifying Board composition in the most balanced structure REFERENCES [1] Laeven, L., & Levine, R (2009) Bank governance, regulation and risk taking. Journal of financial economics, 93(2), 259-275 [2] Gonzalez, F (2005) Bank regulation and risk-taking incentives: An international comparison of bank risk. Journal of Banking & Finance, 29(5), 1153-1184 [3] Boudriga, A, Boulila, N, & Jellouli, S (2009) Does Bank Supervision Impact Nonperforming Loans: Cross-Country Determinants Using Aggregate Data Unpublished Manuscript [4] Boyd, J.H & De Nicolo, G., (2005) The theory of bank risk taking, and competition revisited. The Journal of finance, 60(3), pp.1329-1343 [5] Gambacorta, L., & Mistrulli, P E (2004) Does bank capital affect lending behavior? Journal of Financial intermediation, 13(4), 436-457 [6] Berger, A N., Klapper, L F., & Turk-Ariss, R (2009) Bank competition and financial stability. Journal of Financial Services Research, 35(2), 99-118 [7] Kutubi, S S., Ahmed, K., & Khan, H (2018) Bank performance and risk-taking - 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Review of Finance, 17(4), 1279-1321 [40] Levi, M., Li, K., & Zhang, F (2014) Director gender and mergers and acquisitions Journal of Corporate Finance, 28, 185-200 119 ... relation between the change of board composition and risk taking in banking industry pre and post the financial crisis in the US and the influence of board composition on the risk taking behavior... to examine the relations between board composition and bank risk taking before and after the 2008 global financial crisis Section IV presents research results and discussions and the final Section... investigate the determinant of bank risks and their impact on bank performance after the 2008 financial crisis Up to now, there is no research on the impact of board composition on risk taking of