Board of Director Characteristics and Corporate Lending Judgments

The tense debates about the optimal composition of the board of directors (BOD) between the SEC and the business community and the lack of empirical evidence at the individual level motivates our study. We conduct a behavioral experiment to investigate the influence of corporate governance information at the BOD level on decision behavior. We synthesize the management and organizational behavior literatures with the psychology literature and predict that saliency of information about the roles of the BOD is dependent on task objectives. Specifically, we test the relative extent to which the oversight and strategic roles of the BOD influence lenders' judgments about the credibility of a borrower's financial information and loan approval. The results support our predictions. Specifically, we find the oversight role of the BOD has a more significant positive effect than the BOD's strategic role on judgments about financial credibility. Conversely, but as expected, the BOD's strategic role is more salient in the loan approval judgment. Finally, we observe interaction effects between the strength of the BOD and financial condition; information about the BOD has a greater significant effect when the financial condition of the loan applicant supports approval than otherwise. The paper discusses implications for policy making, practice and research.