EURAM'15: Is #corpgov an important signal for investors?

Banks (amongst many other large corporations) have suffer reputational problems. Simply, many members of the public do not trust the motives of banking executives. Further, there is a dearth of empirical research about bank boards, because banks are routinely omitted from board research. So, when Anastasia Stepanova (Russia) discussed her perception vs. reality study of bank boards, I pricked my ears up. Stepanova's aim was to compare whether perceived relationships between board attributes and market performance were consistent with actual market performance.

Stepanova modelled data from 470 banks around the world. She studied three attributes in particular (the percentage of independent directors, the size of the board and the ownership concentration) and compared perceived market performance with actual performance metrics. The research produced some very interesting results, as follows:

• Independent directors: Perception matched reality. Market performance increased as the percentage of independent directors increased, but only to a maximum of about 85% independent directors, after which market performance dropped away slightly.
• Board size: Perception and reality were different. Actual market performance appears to be independent of board size (steady across a range of board sizes), whereas the market perception performance is impaired as board size grows.
• Ownership concentration: This was rally interesting because perception and reality were radically different: Whereas actual market performance climbs as ownership becomes more concentrated and then drops off again (in an inverted U curve), the market perception is that business performance declines as ownership becomes more concentrated (a U curve).

While further analysis will be required to understand the implications for bank boards and shareholders (and the market more generally), the results highlight that differences between perception and reality are subtle and that they occur at the level of discrete board attributes.

Stepanova's consistent use of the term 'corporate governance' (when she was referring to attributes of boards) was notable. It demonstrated that she conceives corporate governance as being a structure. This conception was common in the 1980s, 1990s and into the 2000s. However, it is being largely superceded by the idea that corporate governance is a process or a policy framework. As a result, Stepanova may benefit from updating her terminology, to assist readers more familiar with contemporary conceptions of the phemonenon.