Do supervisory enforcement actions affect board composition

Research Question/Issue: Do enforcement actions impact banks' board composition?\r\nBased on a unique sample of sanctions imposed on Italian banks by the country's\r\nbanking supervisory authority from 2009 to 2015, we investigate whether\r\nsupervisory enforcement actions affect changes at the board level. Moreover, we\r\nexamine whether changes at the board level after a sanction are effective in reducing\r\nthe probability of further sanctions in the future.\r\nResearch Findings/Insights: The findings reveal that sanctioned banks change their\r\nboard composition following a supervisory sanction. We further test whether these\r\nchanges improve bank governance and find that, under certain conditions, they may\r\nreduce the probability that the board is sanctioned again. Robustness tests confirm\r\nthe results.\r\nTheoretical/Academic Implications: This study provides empirical evidence that supports\r\nthe role of supervisory enforcement actions in inducing banks to adopt changes\r\nat the board level. Given that the relationship between supervisory sanctions and\r\nchanges in board characteristics is still neglected, we contend that our results may\r\nincrease the understanding of the effectiveness of enforcement actions in improving\r\nboard characteristics.\r\nPractitioner/Policy Implications: We believe that our results have policy implications\r\nby making a clear and concrete contribution to the ongoing debate on the\r\nrevision of the principles for enhancing corporate governance and banking\r\nsupervision.