Federal Deposit InsuranceCorporation• Center for Financial Researchh
Sanjiv R. Das
Darrell Duffie
Nikunj Kapadia
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
FDIC Center for Financial Research
Working Paper
No. 2006-11
Community Development Financial Institutions:
Board Size and Diversity asGovernance Mechanisms
Söhnke M. Bartram
Gregory W. Brown
John E. Hund
July 2005D
September 2006
Sanjiv R. Das
Darrell Duffie
Nikunj Kapadia
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
FDIC Center for Financial Research
Working Paper
No. 2006-11
Community Development Financial Institutions:
Board Size and Diversity asGovernance Mechanisms
Söhnke M. Bartram
Gregory W. Brown
John E. Hund
July 2005D
September 2006
Community Development Financial Institutions: Board Size and Diversity as
Governance Mechanisms
Valentina Hartarska
Assistant Professor
Department of Ag. Economics & Rural Sociology
Auburn University,
210 Comer Hall,
Auburn, Al 36849,
phone 334 844 5666,
fax 334 844 5639,
e-mail: hartarska@auburn.edu .
October 12, 2006
Abstract:
CDFIs serve an important social function because they provide access to financial services
to underserved low-income individuals and households. Understanding which governance
mechanisms promote efficient use of scarce resources that these organizations control is
important because only sustainable institutions have the potential to revitalize low-income
communities and change low-income individuals’ lives in the long-term. The focus of this
paper is on evaluating the impact of board size and diversity on the performance of two
types of CDFIs: Community Development Credit Unions and Community Development
Loan Funds. The results show that CD Credit Unions with larger boards are more efficient
in delivering outreach, but board size is not related to CD Loan Funds’ performance. There
is some evidence that CDCUs with boards dominated by women are more efficient in
fulfilling their outreach missions but CDLFs with more gender and racially diverse boards
achieve worse financial results suggesting that group cohesion may be important in
organizations with multiple, especially non-complementary, objectives (such as outreach
and financial self-sufficiency). The results also suggest that there is room for direct
involvement of banks in community development activities rather than relying only on
investment and lending to intermediaries such as CDFIs.
The author gratefully acknowledges financial support for this research form the Center for
Financial Research at the Federal Deposit Insurance Corporation. All errors and omissions
are the author’s only.
1
Governance Mechanisms
Valentina Hartarska
Assistant Professor
Department of Ag. Economics & Rural Sociology
Auburn University,
210 Comer Hall,
Auburn, Al 36849,
phone 334 844 5666,
fax 334 844 5639,
e-mail: hartarska@auburn.edu .
October 12, 2006
Abstract:
CDFIs serve an important social function because they provide access to financial services
to underserved low-income individuals and households. Understanding which governance
mechanisms promote efficient use of scarce resources that these organizations control is
important because only sustainable institutions have the potential to revitalize low-income
communities and change low-income individuals’ lives in the long-term. The focus of this
paper is on evaluating the impact of board size and diversity on the performance of two
types of CDFIs: Community Development Credit Unions and Community Development
Loan Funds. The results show that CD Credit Unions with larger boards are more efficient
in delivering outreach, but board size is not related to CD Loan Funds’ performance. There
is some evidence that CDCUs with boards dominated by women are more efficient in
fulfilling their outreach missions but CDLFs with more gender and racially diverse boards
achieve worse financial results suggesting that group cohesion may be important in
organizations with multiple, especially non-complementary, objectives (such as outreach
and financial self-sufficiency). The results also suggest that there is room for direct
involvement of banks in community development activities rather than relying only on
investment and lending to intermediaries such as CDFIs.
The author gratefully acknowledges financial support for this research form the Center for
Financial Research at the Federal Deposit Insurance Corporation. All errors and omissions
are the author’s only.
1