The next in a series of open research seminars was held at the National Bank of Ukraine last week at which Dr. Oleksandr Talavera, Professor at Swansea University (UK) presented the findings of his research on “Managing the diversity: board age diversity, directors' personal values, and bank performance”, which was conducted jointly with Mr Shuxing Yin and Mr Mao Zhang.
Professor Talavera carried out a joint research project with other co-authors to investigate the impact of board age diversity on bank performance. Among the attributes of directors, such as age, gender, education, ethnicity, age is a key diversity dimension that shapes the formation of their personal and professional values and thus determines their risk appetite. It is common knowledge that younger executives appear to have higher propensity to make risky decisions that can both strengthen bank profitability and increase the probability of loss-making performance. On the contrary, older executives tend to be more cautious and conservative when making risky decisions. A key focus for them is to preserve the stability of the bank’s financial standing. Therefore, compared to younger executives, older executives tend to make decisions that will result in lower investment, a lower return on investment but ensure that the bank maintains sufficient liquidity.
The researchers have searched an answer to the question: whether the heterogeneity of directors’ ages is beneficial to the decision-making via directors’ different values. There are points of view that significant age diversity could negatively affect the Board's unity and even generate conflicts in decision-making among different groups of directors. As a result, age diversity could adversely affect firm profitability, leading to capital losses and firms' departure from the selected development strategy. On the other hand, having young executives on board may encourage older executives to take riskier and more effective decisions in terms of a bank’s profitability.
The empirical study was based on Chinese banking sector data. The Chinese banking sector is one of the most powerful banking sectors and one of the most interesting from an economic point of view and banking management practices. Based on a sample of 97 Chinese banks over the period from 2009 to 2013, the researchers documented a negative relationship between an inverse relationship between the homogeneity of directors’ ages and bank performance. This inverse relationship can be attributed to value diversity intrinsic to different generations in boards that is manifested in decision-making, in particular their different risk appetite. Following an active discussion, the seminar participants concluded that this methodology can be applied to investigating management efficiency in Ukrainian banks.
The seminar was conducted as part of the Visiting Scholar program initiated by the NBU within the framework of the NBU Capacity Building Project implemented under the auspices of the Government of Canada and the International Monetary Fund.
Please follow the link to view the paper in English.
The video of the seminar is available at the following link.
We invite potential contributors to participate in the upcoming seminars and present the findings of their research studies. To this end, please send your submissions (CV, abstract, with an indication of a suitable date for the seminar to take place. Please send your proposals to the Research Division of the Monetary Policy and Economic Analysis Department for consideration via e-mail to: [email protected]