Review of Finance Advance Access published online on May 8, 2009
Review of Finance, doi:10.1093/rof/rfp007
Bankers on the Boards of German Firms: What They Do, What They Are Worth, and Why They Are (Still) There*
1 Erasmus University Rotterdam
2 University of Mannheim
3 University of Mannheim
We analyze the role of bankers on the boards of German non-financial companies for the period from 1994 to 2005. We find that banks that are represented on a firm's board promote their own business as lenders and as M&A advisors. They also seem to act as financial experts who help firms to obtain funding, especially in difficult times. We find little evidence that bankers monitor management and suggest that bankers on the board cause a decline in the valuations of non-financial firms. Banks’ equity ownership declined sharply during our sample period and the German financial system lost some of its formerly distinctive features.
JEL Classification: G21, G34
* We are grateful to Rafel Crespi, Miguel A. García-Cestona, Abe de Jong, Jan Krahnen, Daniel Kreutzmann, Claudio Loderer, Ulrike Malmendier, Garen Markarian, Werner Neus, Jörg Rocholl, Günseli Tümer-Alkan, Yishay Yafeh, David Yermack, and seminar participants at Humboldt-University Berlin, the Campus for Finance Research conference, the University of Cologne, the ECGI Best Paper on Corporate Governance Competition conferences, the European School of Management and Technology, Universidad Autònoma de Barcelona, Helsinki School of Economics, the University of Konstanz, the Conference on Corporate Governance in Copenhagen, ENTER-Jamboree in Mannheim, the German Economic Association for Business Administration (GEABA) meetings, the Understanding Corporate Governance conference in Madrid, the conference of the TR/SFB 15 in Gummersbach, and the German Finance Association (DGF) meetings in Oestrich-Winkel for clarifying discussions and suggestions on earlier drafts of this paper. In addition, the paper greatly benefited from the comments of an anonymous referee and the co-editor Colin Mayer. We thank Christian Bassen and numerous research assistants in Berlin and Mannheim for excellent research assistance. We are also grateful to the Deutsche Bundesbank, in particular to Thilo Liebig, Ingrid Stein, and Natalja von Westernhagen for supporting us with access to their loan data. We gratefully acknowledge financial support from the collaborative research centres SFB 504 "Rationality Concepts, Decision Making and Economic Modeling" and TR/SFB 15 "Governance and the Efficiency of Economic Systems" at the University of Mannheim and from the Rudolph von Bennigsen-Foerder-foundation. Christoph Schneider acknowledges the support of a DekaBank scholarship.