Age diversity and the monitoring role of corporate boards: Evidence from banks

Abstract

We investigate how age diversity on corporate boards affects their monitoring performance. Despite the critical importance of the monitoring function of the board, previous studies focus mainly on the advisory role of age-diversified boards. Our emphasis is on banks where the opacity in their complex operations poses a challenge for external stakeholders to assess performance and thus they heavily rely on the board for monitoring managerial activities. We examine how age diversity affects one of the primary monitoring roles of corporate boards – a responsibility over the provision of high-quality financial reports. Using a large panel data of banks in the United States ( N = 7005) our findings suggest that age-diversified boards are associated with less earnings management, indicative of higher-quality reporting. Our results still hold for different indicators of the monitoring performance of the board in other areas, such as loan risk. Further analysis reveals that, as age diversity increases, the strength of the board’s monitoring effectiveness also increases. Overall, our findings suggest that age-diversified boards are more effective at monitoring managerial decision making.

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