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Title: Taking the Lord's Name in Vain: The Impact of Connected Directors on 19th century British Banks

Author(s): Richard Grossman and Masami Imai

Publication Date: January 2015

Keyword(s): banks, capital markets, corporate governance, economic history and private finance

Programme Area(s): Economic History and Industrial Organization

Abstract: This paper utilizes data on the presence of prominent individuals?that is, those with political (e.g., Members of Parliament) and aristocratic titles (e.g., lords)--on the boards of directors of English and Welsh banks from 1879-1909 to investigate whether the appointment of well-connected directors enhanced equity value for bank shareholders. Our analysis of panel data shows that the appointment of connected directors did not increase the rate of return on bank equity. In fact, we find that the appointment of MPs to directorships had negative effects on bank equity returns. Our event-study analysis corroborates this finding, showing that a bank?s shares exhibited negative abnormal returns when their directors were elected to Parliament. Taken together, our results indicate that connected directors yielded little--or even negative--economic payoff to bank shareholders in pre-war Britain.

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Bibliographic Reference

Grossman, R and Imai, M. 2015. 'Taking the Lord's Name in Vain: The Impact of Connected Directors on 19th century British Banks'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10367