Estimating the potential impact of requiring a stand-alone board-level risk committee

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Abstract

Motivated by the requirement under the Dodd-Frank Act that all large bank holding companies create a stand-alone, board-level risk committee, this paper investigates the association between such a committee and regulatory risk both before and during the financial crisis. I focus the analysis on the set of banks that did not have a risk committee in place prior to the Dodd-Frank Act, as these are the banks that were most affected by the regulation. I find that matched control banks with a risk committee in place had higher capital ratios during the financial crisis, but lower capital ratios during more stable economic conditions relative to the banks without a risk committee. This paper contributes to the literature by narrowly investigating the effects a board-level risk committee, by focusing on a risk measure that is of interest to the regulators who implemented the new regulation, and by documenting that this association changes over time which highlights the importance of estimating the effects of new regulations across different economic conditions.

Original languageEnglish (US)
Article number106709
JournalJournal of Accounting and Public Policy
Volume39
Issue number5
DOIs
StatePublished - Sep 1 2020

Bibliographical note

Funding Information:
I thank Naomi Soderstrom (editor) and two anonymous referees for helpful comments and suggestions. I am indebted to the members of my dissertation committee: Anne Beatty (Chair), Darren Roulstone, Doug Schroeder and Andy Van Buskirk for constant guidance and support. I also thank Minkwan Ahn, Anil Arya, Sam Bonsall, Zahn Bozanic, Bret Johnson, Allison Nicoletti, Jennifer Stevens, Austin Sudbury, Quinn Swanquist, and Xue Wang as well as participants of the 2019 Journal of Accounting and Public Policy conference and workshop participants at The Ohio State University, Georgetown University, University of Minnesota, University of Michigan, George Washington University, University of Rochester, Purdue University, Florida State University and University of Illinois-Chicago for helpful comments and suggestions. I gratefully acknowledge financial support from the Deloitte Foundation Doctoral Fellowship, the Fisher College of Business, and the Carlson School of Management Appendix A

Keywords

  • Average treatment effect on the untreated
  • Board of directors
  • Risk committee

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