Essays on Social Networks and Bank Systemic Risk

關於社會網絡和銀行系統風險的論文

Student thesis: Doctoral Thesis

View graph of relations

Related Research Unit(s)

Detail(s)

Awarding Institution
Supervisors/Advisors
Award date27 Aug 2021

Abstract

This thesis consists of two essays about the relationship between banks’ executives and banks’ contribution to systemic risk.

The first essay examines the effect of CEO social connection on a bank’s systemic risk. Using a sample of 1,049 CEOs at 606 U.S. publicly-traded banks over the period 2000 to 2018, we find that banks governed by CEOs with more social connections with executives of other banks are exposed more to systemic risk than banks governed by CEOs with fewer social connections. Using CEO death as an exogenous shock to social networks, we employ a difference-in-differences model to identify the causal relation between CEO social connection and bank systemic risk. We further document the two mechanisms attributed to this causality. First, we find that banks governed by socially connected CEOs are more active in inter-bank transactions. Second, banks with connected CEOs share a higher degree of asset similarity and have a higher correlation in their stock returns than those without connected CEOs. Our findings provide new insights into the relationship between the social network of bank executives and the financial interconnectedness of the banking sector.

The second essay examines the effect of board members’ financial expertise on banks’ systemic risk. We construct measures of financial expertise based on directors’ professional qualification or experience in corporate financial management in their employment history. Using a sample of 11,535 unique directors at 606 unique U.S. publicly traded banks over the period 2000 to 2018, we find that a banks’ contribution to systemic risk increases with the financial expertise of directors. To address the potential endogeneity of financial expertise, we employ an instrumental variable regression, and our results remain robust. In addition, we find that the effect of financial expertise on banks’ exposure to systemic risk is higher for banks with large board sizes. We further find that the effect of financial expertise on banks' exposure to systemic risk is lower for banks with busy boards.