Document Type
Article
Publication Date
2011
DOI
10.1111/j.1467-8683.2011.00871.x
Publication Title
Corporate Governance: An International Review
Volume
19
Issue
5
Pages
405-417
Abstract
Research Question/Issue: The origins of the global financial crisis have been attributed to the combination of a housing price bubble and innovative financial instruments, as well as the lack of restraint by corporate executives and boards to engage in excessive risk-taking. The rise in subprime lending between 1997 and 2005 played a crucial role in inflating the housing price bubble. We take a unique dataset of US financial institutions heavily engaged in subprime lending and ask the following research question: Did board configuration play a role in determining whether a financial institution specialized in subprime lending?
Research Findings/Insights: We use a matched-pair sample of firms in the financial industry from 1997-2005 with half of the sample specializing in subprime lending and conduct panel data logistic regression analysis. We find that the board configurations of those financial institutions that engaged in subprime lending were significantly different from those that did not. Specifically, subprime lenders had boards that were busier, had less tenure, and were less diverse with respect to gender.
Theoretical/Academic Implications: This study uses the group decision making perspective in the context of subprime lending to examine board of director configuration and its influence on decision making processes around the issue of risky subprime lending. Findings show that how boards were configured did influence the decision to specialize in subprime lending. We find robust support for predictions based on the group decision making perspective.
Practitioner/Policy Implications: The deterioration of mortgage lending requirements that gave rise to the defaults of so many subprime loans, in retrospect, appears to be something that should have been entirely preventable. By demonstrating that subprime specialists had significant differences in board configuration that impacted group decision making, this study offers guidance to policymakers considering additional regulation and for corporate officers examining corporate governance issues.
ORCID
0000-0003-4924-6362 (Lewellyn)
Original Publication Citation
Muller-Kahle, M. I., & Lewellyn, K. B. (2011). Did board configuration matter? The case of us subprime lenders. Corporate Governance: An International Review, 19(5), 405-417. doi:10.1111/j.1467-8683.2011.00871.x
Repository Citation
Muller-Kahle, Maureen I. and Lewellyn, Krista B., "Did Board Configuration Matter? The Case of US Subprime Lenders" (2011). Management Faculty Publications. 22.
https://digitalcommons.odu.edu/management_fac_pubs/22
Included in
Business Administration, Management, and Operations Commons, Finance and Financial Management Commons
Comments
Web of Science: "Free full-text from publisher -- gold open access."