Bankers on Boards, Financial Constraints,

We investigate determinants of bankers’ presence on boards of non-financial corporations, factors contributing to their appointments, and bankers’ effect on leverage, investment, and Tobin’s Q following board-appointments. We use a unique data set comprising financially-distressed, undistressed, constrained and unconstrained firms of all asset-sizes. We find banker-board-appointments are positively related to size and negatively related to Q and a measure of financial distress. We find banker-directors contribute to leverage increases if the banker has a previous lending relationship with the firm, especially for relatively more distressed firms. Bankers on boards reduce investment efficiency by reducing (enhancing) investment at firms in high-growth (lowgrowth) industries. Firms appointing banker-directors show changes in valuations inversely related to their degrees of financial constraint. Firms appointing bankerdirectors who are also creditors exhibit value declines following their appointments, more so for more distressed firms. In total, banker-directors do not appear to provide valuemaximizing advice for the firm. * We thank participants of the FDIC’s Center for Financial Research Seminar Series for helpful comments. We also thank Patricia Grant, Deepak Nair, and Will Quick for their research assistance.