A cross-regional analysis of board-specific skills, member compensation and non-performing loans in Asian and European banks

Purpose This study uncovers three critical relationships in banking governance: how board-specific skills (BSS) influence board member compensation (BMC), how BMC affects nonperforming loans (NPLs) and whether BSS moderates the relationship between BMC and NPLs. Design/methodology/approach Examining 483 banks across Asia (259) and Europe (224) from 2011 to 2022, we reveal intriguing regional differences by conducting a two-step system generalized method of moment (SGMM) as an econometric approach. Findings Empirical findings provide strong evidence that the relationship between BSS, BMC and NPLs is not straightforward; it varies significantly by region and the skill level of board members. First, results reveal that an increase in BSS is associated with a decrease in BMC for the overall sample and, more specifically, Asian banks. In contrast, BSS is associated with increased board remuneration for European banks. Second, we found that BMC significantly raises nonperforming loans (NPLs). Finally, we confirm that BSS moderates the relationship between BMC and NPLs. Originality/value To the authors’ knowledge, only a few studies have explored the combined effects of board-specific skills, board remuneration and nonperforming loans. Additionally, we examine how BSS moderates the relationship between board remuneration and NPLs at different levels of specific skills.

Department

Finance

Publisher

Emerald

Sponsor

NA