Is board-tie among rivals harmful to customers? Evidence from banks’ project-financing consortium

Abstract

Purpose: Are board ties among competitors harmful to customers? The prevalent assumption on board ties among competitors is that they harm customer benefits. This study examines the mechanism by which board ties with competitors result in an outcome conducive to customers.

Design/methodology/approach: Based on a sample of 79 savings banks in South Korea, we investigate the extent of banks’ board ties with other banks and their engagement in a project financing (PF) consortium from 2014 to 2020. The generalised least square was adopted to test the hypotheses. We also performed several supplemental analyses to further support our results.

Findings/results: Savings banks with greater board ties with rivals provided more financial opportunities to their customers by forming PF consortia more actively with other banks. Furthermore, the positive impact of board ties on banks’ participation in a PF consortium increases, especially when the proportion of external shareholders is smaller or when savings banks are family firms.

Practical implications: Outside directors can not only play the role of monitoring the management but also serve as assistants who can help banks provide financial services (or products) that banks could not provide individually.

Originality/value: While prior studies have clearly recognised the negative impacts on customers of board-friendship ties among rivals, little attention has been paid to the potential mechanism by which board ties among competing firms can benefit customers. This study challenges the dominant assumption by demonstrating that savings banks with greater board ties with other banks provide more financial opportunities to their economically weak customers.

Contribution: Finally, this study contributes to the family business literature by providing insight into how the unique characteristics of family firms in strategic choices make outside directors contribute as assistants than supervisors.