TY  - JOUR
AU  - Güner,A. Burak
AU  - Malmendier,Ulrike
AU  - Tate,Geoffrey
TI  - Financial Expertise of Directors
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11914
PY  - 2006
Y2  - January 2006
UR  - http://www.nber.org/papers/w11914
L1  - http://www.nber.org/papers/w11914.pdf
N1  - Author contact info:
A. Burak Guner
1219 Clark Way
Stanford West Apt
Palo Alto, CA 94304
Tel: 650/743-2653
E-Mail: burak.guner@barclaysglobal.com

Ulrike Malmendier
Department of Economics
549 Evans Hall # 3880
University of California, Berkeley
Berkeley, CA 94720-3880
Tel: 510-642-5038
E-Mail: ulrike@econ.berkeley.edu

Geoffrey Tate
Finance Department - Rm C420
UCLA Anderson School of Management
110 Westwood Plaza
Los Angeles, CA  90095
Tel: 310-825-3544
E-Mail: geoff.tate@anderson.ucla.edu
AB  - The composition and functioning of corporate boards is at the core of the academic and policy debate on optimal corporate governance. But does board composition matter for corporate decisions? In this paper, we analyze the role of financial experts on boards. In a novel panel data set on board composition, we find that financial experts significantly affect corporate decisions, though not necessarily in the interest of shareholders. First, when commercial bankers join boards, external funding increases and investment-cash flow sensitivity diminishes. But, the increased financing affects mostly firms with good credit and poor investment opportunities. Second, investment bankers on the board are associated with larger bond issues, but also worse acquisitions. Third, we find little evidence that financial expertise matters for compensation policy or for experts without affiliation to a financial institution. The results suggest a tradeoff between outside incentives (e.g. bank profits) and the incentive to maximize firm value. Requiring financial expertise on boards, as mandated by regulatory proposals, may not benefit shareholders if conflicting interests are neglected.
ER  -