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The impact of foreign ownership and board membership on the performance of domestic banks: evidence from Portugal
Mohamed Azzim Gulamhussen, Instituto Superior de Ciências do Trabalho e da Empresa
Luís Miguel Guerreiro, Banco De Portugal
ABSTRACT. This study examines the effect of foreign ownership and board membership on the performance of domestic banks in Portugal. The findings reveal a negative relationship between foreign ownership and bank costs. Evidence also indicates that foreign board members introduce improvements in organizational structure and operational efficiency. Furthermore, our results suggest that domestic banks’ dependence on traditional banking areas of business is reduced due to foreign board members’ experienced insights and understanding of markets and competition beyond the local environment. Additionally, foreign directors with major influence on the board seem to be more willing to address the deterioration of asset quality by promoting the adoption of more prudent practices in lending and management of credit risk. These findings indicate that foreign ownership and board membership can play an important role in importing managerial practices that can improve the performance of domestic banks.
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