Bank nominee directors and corporate performance: micro evidence for India

Abstract

Banks and financial institutions play a major role in governance of non-financial\ncompanies in India through the mechanism of nominee directors. This paper probes two\nallied issues: firstly, the isolation of the firm specific factors which determine the\npresence of bank nominee directors on boards and secondly, whether companies, with bank\nnominee directors exhibit better performance/governance than companies with no banker\nrepresentation on their boards. A Probit model estimated over a cross-section of\nIndian manufacturing firms for 2003, indicates that bankers on boards seem to exert a\nhealthy impact on the companies. In fact, large public limited companies are likely to\nexhibit banker representation, primarily in their role as expertise providers.\nThe evidence from Tobit model reconfirms these results.

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