Bankers on the Board,Market Competition,and Conflicts of Interest

Abstract

Bankers on the board are expected to act as a fund-raiser and to help lowering financial costs, but they can impose conflicts of interest between shareholders and creditors. We empirically analyse the impact of banker-directors on corporate leverage and investment, using Korean firm data during the period from 2000 to 2012. Bankers on the board turn out to play different roles depending on market competition and macroeconomic circumstance. In less competitive industries where banks are less concerned about financial distress as a creditor, the presence of bankers on the board has higher leverage and more active investment, which can align with the interest of shareholders. However, in more competitive environment where firms are more concerned about financial distress and external financing, bankers on the board do not always increase leverage and investment, which can be divergent from the interest of shareholders.