Political Connections and Banking Performance: The Moderating Effect of Gender Diversity

Abstract

Purpose – The present study investigates the role of board gender diversity in explaining the effects of board members' political connections on banking performance in the Eurozone. Design/methodology/approach — This paper analyses panel data on 83 banks supervised by the European Central Bank (ECB) for the period 2013-2017, using a GMM-type estimation methodology. Findings — Results suggest that when gender diversity is high, there is a U-shaped nonlinear relationship between political connections and banking performance. Empirical evidence also indicates that differentiating characteristics of women, such as greater ethical concern and risk aversion, help mitigate the negative effects of political connections on banking performance, safeguarding the institutions’ interests from the adverse effects of personal agendas. In addition, these results also suggest that a minimum of 14% gender diversity can contribute to greater social justice and beneficial structural change. Research limitations/implications — The period studied may not yet fully reflect the impact of the assessment of the board members’ suitability. Practical implications—The paper contributes to the growing literature on political connections and gender diversity, providing a greater insight into their role as determinants of banking performance. The study also suggests the benefits and possible limitations of the Regulator’s two impositions — gender diversity quotas and members’ repute (members’ political connections). Originality/value —The effect of gender diversity on the impact of board members' political connections on banking performance has not been studied, as these relationships have not been analysed separately for banks directly supervised by the ECB.