Does the Size and Composition of the Board of Directors of Shinkin Banks Affect their Risk Taking and Efficiency?

This paper investigates the effect of the size and composition of the board of directors of Shinkin Banks on their efficiency and risk taking. Because employees are important stakeholders in Japanese firms, we define the relative size of the board of directors as the number of directors per employee. We also consider the composition of the board; specifically, we employ a dummy variable representing whether the board includes directors who were not employees of that Shinkin Bank, and also the fraction of directors who do not have the right to represent that Shinkin Bank. We found the following. First, smaller the relative size of the board, the more efficient the Shinkin Bank is. Second, those Shinkin Banks which have ever-non-employee directors are more efficient than others. Third, the smaller the relative size of the board, the less risk the Shinkin Bank takes. On the other hand, we found that mergers and competitiveness of bank location do not affect the relationship between board size and efficiency.