Board Accountability and Risk Taking in Banking: Evidence from a Quasi-Experiment

In this paper, a law reform is evaluated that aimed at improving the corporate governance of banks by tightening accountability and legal liability of outside directors. The causal effect of the reform on bank risk is identified by difference-in-differences and triple differences strategies. The estimation results show that banks subject to the reform increased capital and liquidity ratios. Hence, designing board-level governance can be an effective policy tool for altering the risk-taking behavior of banks.