The Chair-CEO Chronological Age Gap and Bank

Performance: The Effects of Financial Crisis Shock

Vu Quang Trinh *
Newcastle University Business School, Newcastle University, UK
*Corresponding author. Email: [email protected]. Address: Room FDC 3.52,
Frederick Douglass Centre. Newcastle University, Newcastle Helix, 2 Science Square,
Newcastle upon Tyne, NE4 5TG, United Kingdom.

Ngan Duong Cao

University of Bath School of Management, UK
Email: [email protected]. Address: Claverton road, Bath, BA 2 7AY, UK.

Loc Thanh Phan

Independent researcher
Email: [email protected]. Address: Ho Chi Minh city, Vietnam.

Mary Nanyondo
Durham University Business School, Durham University, UK
Email: [email protected]. Address: Durham University Business School, Mill
Hill Lane, Durham DH1 3LB, UK.

Abstract
This study investigates the effect of the Chair-CEO chronological age gap on the performance
of commercial banks listed on the London Stock Exchange. We examine either the Chair-CEO
generational gap (a minimum age gap of 20 years) or the Chair-CEO age difference (+/- or
absolute). We find significant evidence for the hypothesis that the Chair-CEO age dissimilarity
is likely to increase bank performance. Additional identification attempts include the use of the
2007-2009 financial crisis as an exogenous shock to monitoring needs. We find that during the
crisis, the positive linkage between age difference and bank performance was more intensified.

Keywords: Chair; CEO; Age dissimilarity; Banks; Board of directors; Performance

JEL Classification: C23, G01, G21, G28, L50, M41

Conflict of Interest: The authors declare that they have no conflict of interest
1. Introduction
Conflicts among individuals serving on corporate board of directors have been well-
acknowledged as a critical issue in organisations. These conflicts may impose either negative
or positive impacts on the quality of board decision-making, including goal-setting process of
firms and other firms’ behaviours, which indirectly affect their performance. Literature over
decades has provided numerous theoretical and empirical evidence on this issue (see, e.g.,
Amason and Mooney, 1999; Simons and Peterson, 2000; Jehn and Chatman, 2000). They
generally state that different conflicts are present in every decision-making process. Whenever
boards make choices and decisions, a series of competing opinions, perspectives, views, needs
and agendas across board members is inherently unavoidable. Those conflicts within the board
of directors could be manifested itself and its consequences on the decision outcomes and last
execution, has been a great interest of both academics and practitioners (Clerkin and Jones,
2013). Serious conflicts caused by different views of board team members may lead to rejection
or acceptance of valuable projects, thus arguably affecting firm performance.
Board effectiveness in making informed decisions, however, might be affected by personal
cognitions of board members since directors may judge and evaluate key corporate strategies
and policies differently as do executives. Consequently, underlying cognitive conflicts can lead
to disagreements and conflicts among them, which require thorough discussion and solid
consideration to be resolved. As a result, decision making of boards can be improved especially
in uncertain business environments (Forbes and Milliken, 1999). One of the common channels
through which those conflicts can occur is the age difference among board members. Members
of different generations may have different expectations about the firm’s future prospective,
resulting in different goal setting as well as different project appraisal techniques.
Alternatively, age dissimilarity may influence firm performance in a way that board members
might keenly communicate, interact, and monitor each other due to the generational distance
(Goergen et al., 2015).
A sizable body of studies have focused on the systematic linkage between directors’ age and
performance (e.g., Waelchli and Zeller, 2013; Serfling, 2014; Berger et al., 2014). Relatively
little (except for Goergen et al., 2015) minds the gap in how age dissimilarity between the
Chairman (Chair, hereafter) and the CEO is related to firm performance, especially in banks.
Elmghaamez and Akintoye (2020) and Al-ahdal and Prusty (2020) emphasised an essential
need for a sound understanding of the influence of the internal governance, particularly, the
Chair on corporate governance as well as the form of the optimal Chair-CEO linkage (Goergen
et al., 2015). They, thus, examined the relation between the Chair-CEO age difference and firm
value under the German two-tier board system. They find a positive relationship between
substantial Chair-CEO age difference and board monitoring as well as corporate value.
Furthermore, they also suggest that further research should focus on Chair’s characteristics as
there is an increasing need for understanding the influence of the Chairman and his relation to
other members.
In our study setting, banking institutions are more complex and opaque firms compared to
non-financial (industrial) peers with more sophisticated governance codes due to its needs of
higher monitoring levels (Elnahass et al., 2020a,b; Trinh et al., 2020a, b, c, d). Especially, after
the recent global financial crisis 2007-2009, the contagious collapse of the banking system had

1
disastrously damaged the whole global economy and financial markets, bank governance
quality has been emphasized to assure the soundness of bank performance. Therefore, they may
be more likely to be affected by the substantial age difference between the Chair and the CEO.
In addition, the importance of investigating performance in the banking sector has been
significantly growing, which makes this study timely. To date, there is no empirical banking
study that tests the age difference between Chairs and CEOs of firms listed on the London
Stock Exchange (LSE), suggesting a new investigation on this market. LSE and banking studies
only mainly focus on other board characteristics such as board gender diversity, board size,
and board independence, to mention a few (e.g., Trinh et al., 2018; Pasaribu, 2017; Gregory-
Smith et al., 2014). LSE is a valuable sample for this research as its Corporate Governance
Code including banks guides that the Chair and the CEO must be two different individuals
(Goergen et al., 2015). Based on the UK Board Index (2015), the average age of the Chair (64.1
years old for men and 56.8 years old for women) is higher than that of the CEO (54 years old
for men and 49.8 years old for women). Thereby, in this study, we try to contribute novel
knowledge on this concept by investigating the impact of the Chair-CEO age dissimilarity on
the operating performance of LSE-listed banks. By doing so, our study extends the existing
research of Goergen et al. (2015) and other corporate governance literature (e.g., Trinh et al.,
2018; Pasaribu, 2017).
We employ homophily as the main theoretical framework to describe the potential link
between the Chair-CEO age difference and bank performance. It refers to the “similar
attraction” phenomenon that people with similar demographic attributes tend to communicate
and interact more with each other which in turn moderates cognitive conflicts (McPherson et
al., 2001). This is also supported by theories of social identity (Tajfel, 1974) and self-
categorisation (Turner et al., 1987), which contend that individuals are likely to classify
themselves and others into different groups through employing personally meaningful
dimensions i.e., demographic categories. Basically, a higher age difference between the Chair
and the CEO may create more cognitive conflicts as they have less communication and
interaction (homophily) and classify them into different groups (theories of social identity and
self-categorisation). In this study setting, the Chair and the CEO play key roles within a board.
Both positions tend to be affected by homophily through their interaction; hence, they
significantly affect corporate boards’ performance (Goergen et al., 2015). Age dissimilarity
between the Chair and the CEO causes an increased mismatch in views and thoughts because
they may experience the different historical events and social trends, thus, increase cognitive
conflicts which require more efforts of the Chair in monitoring the CEO. As such, their attitudes
towards risk and religious aspects may be different. As a result of those cognitive differences,
the Chair and the CEO with a large age gap may exhibit weak rapports, strengthening the
monitoring duties of the Chair through stronger independence and objectiveness. Therefore,
the bank performances can be enhanced. Another angle on the age dissimilarity argues that age
difference between the Chair and the CEO may reduce communication and informational
exchange between them that increases information asymmetry within firms (e.g., high agency
problem). These two opposite predictions and a lack of evidence in banks (which shows high
monitoring needs from the Chair to the CEO) call for more research in this issue.
We employ a unique unbalanced panel of 18 listed banks in London Stock Exchange for a
stretched period of 1989-2017. We utilise both, the Chair-CEO generational gap (minimum of

2
20 years age difference) and the Chair-CEO age difference (+/- or absolute), as our main
interest variables. Results indicate that banks with larger (or, substantial) age difference
between the Chair and the CEO exhibit better financial performance. This is consistent with
homophily hypothesis and prior studies (e.g., Goergen et al., 2015). Remarkably, we find that
such a positive relation appears to be stronger during the financial crisis. Possibly, the board of
directors including the Chair obtains more fully and accurately information provided by the
CEO who were trying to convince the former to approve their strategic plans. They thus are
likely to successfully find better solutions for their banks, e.g., appropriate strategies to
overcome the crisis.
Our work makes a noteworthy contribution to the limited literature about the influence(s) of
the Chair’s characteristics on firm performance. To the best of our knowledge, only two studies
work on the age-related topic. First, Waelchli and Zeller (2013) found the adverse role of
Chair’s age on unlisted Swiss firms’ performance. More related to our study, Goergen et al.
(2015) examined the Chair-CEO age gap on financial performances of firms. They find that a
larger age gap between the Chair and the CEO tends to improve German firms’ value.
Nonetheless, both above studies were conducted on a non-bank sample. We, therefore, are the
first to do so and find a positive relation between Chair-CEO age difference and LSE banks’
profitability. We also contribute to the emerging literature (e.g. Hwang and Kim, 2009;
Nguyen, 2012; Fracassi and Tate, 2012; Lee et al., 2014) on the impact of (dis)similarities
between the CEO and members of board of directors. While the studies mentioned previously
mainly focus on the entire boards and similarity stemming from social ties, our research
emphasises demographic similarity and especially the indispensable linkage between the Chair
and the CEO. Results of the current study can provide recommendations to regulators, market
participants and listed banks in LSE by raising a higher awareness regarding the effect of
having a CEO and a Chair of different ages. In addition, investors who want to invest in LSE
can rely on our findings to make their profound investment decisions to enhance investment
effectiveness and profitability. Finally, this study should be also a good reference for further
research in the subject of related corporate governance areas.
The remainder of the article is as follows. Section 2 presents the related studies and
hypothesis development. Section 3 presents methodology, sample selection and descriptive
statistics. This is followed by Section 4 and 5 which report the finding and analysis, and
sensitivities/robustness checks, respectively. Finally, a conclusion in Section 6 closes the study.

2. Background and hypotheses

2.1. Related Studies
The subprime mortgage crisis and the following credit crunch have emphasised a significant
effect of inadequate governance practices of banks on their excessive risk-taking, financial
instability and poor performance (see Diamond and Rajan, 2009; Kirkpatrick, 2009; Beltratti
and Stulz, 2012; Peni and Vahamaa, 2012; Jizi et al., 2014). Policymakers thus have indicated
that more effective governance mechanisms can curb a bank’s excess risk-taking and improve
its financial performance, which is vital to enhance the soundness of the financial system
(OECD, 2010; BIS, 2014). Prior research in the non-financial sector has been extensively
conducted on the linkage between characteristics of the boards of directors (board size, board

3
independence, and CEO duality) and firm performance, risk-taking and market value (e.g.
Carter et al., 2003; Adams and Ferreira, 2009; Pathan, 2009; Gerged and Agwili, 2020;
Ferramosca, D'Onza, Allegrini, 2017). Unfortunately, extremely limited studies inform
literature about the Chair of the boards in general, and the Chair-CEO age dissimilarity
influence on firm performance in particular. Goergen et al. (2015) is an exceptional attempt,
but only tested for German industrial firms’ value.
The complexity and opacity of banking institutions tend to impose challenges for effective
governance characteristics (Wilson et al., 2010). Indeed, informational asymmetries between
management and shareholders appear to be prevalent. Informationally opaque bank assets are
likely to encourage management to take higher risks without being sufficiently scrutinised and
assessed by external stakeholders (Diamond, 1984; Morgan, 2000; Becht et al., 2011). Also,
moral hazard and adverse selection issues can arise due to the “too-big-too-fail” concept of
bank and other safety net subsidies, and this, hence, increases banks’ incentives to take more
perceived risk (Molyneux et al., 2014). However, the bank board of directors can oversee risk
management and improve the bank financial stability as well as its performance by effectively
providing four core functions to banks (Srivastav and Hagendorff, 2015). These consist of
scrutinising/managing managers, providing information and counsel to managers, monitoring
compliance with applicable laws and regulations, and connecting the corporation to the external
environment (e.g. Carter et al., 2010).
Such discussion raises the need for investigation on banking in relation to corporate
governance, especially, the relation between CEO and Chairman (Gontarek and Belghitar,
2021; Ferramosca, D'Onza, & Allegrini, 2017). Particularly, Gontarek and Belghitar (2021)
have emphasised in their study on the critical influences, which can be problematic, of CEO-
Chair relation on the strategic decision making in the banking sector. Nonetheless, although
previous studies have attempted to address key functions of the boardroom in various ways,
research of corporate governance within banks is still deficient. Most existing banking
governance studies (e.g., Pathan, 2009; Fortin et al., 2010; Adams, 2012; Minton et al., 2014;
Peni and Vahamaa, 2012) have argued that the composition of the board of directors can affect
the execution of these functions, hence, the strong board might enhance the bank financial
performance. They find that over the crisis, larger boards of directors in US financial
institutions generally are associated with higher risk-taking and lower performance. Other
studies (e.g. Akhigbe and Martin, 2008; Minton et al., 2014; Feleye and Krishnan, 2015) find
a negative effect of board size and bank risk for the pre-crisis period. In addition, Wang and
Hsu (2013) tested for pre- and post-crisis periods and explored that banking firms are likely to
be risker when they have bigger boards of directors. Most of these studies were conducted in
the US. Most of these studies were conducted in US. Other cross-country studies in banks (e.g.,
Beltratti and Stulz, 2012) conclude that larger boards of directors are related to higher bank
performance during crisis periods while Erkens et al. (2012) cannot find such association for
the pre-crisis period. Although this link between board size and bank performance are
ambiguous, empirical evidence on board independence (e.g., Beltratti and Stulz, 2012; Erkens
et al., 2012; Minton et al., 2014; Faleye and Krishnan, 2017) are clearer that board
independence mitigates the risks of banks and hence, bank financial performance. Bank
performance can be also affected by various demographics of board of directors such as
directors’ age, gender and educational degree. For instance, bank boards with a greater portion

4
of younger and female executive directors tend to increase portfolio risk and lower operating
performance whilst boards with more directors with PhD reduce bank risk and enhance
performance (Berger et al., 2014).
Among these many board attributes, prior research (e.g., Pesamaa et al., 2008) finds a
positive relationship between board members’ average age and corporate sales. Average age
can capture an aspect of board diversity which shows a significant effect on performance. In
addition, the qualifications as well as compositions of the boards have emerged as focal points
in the ongoing corporate governance dialogue. Increasingly, there is a higher need for board
directors with profound management experience, skills and diverse perspectives to serve
clients, execute relative competitive strategies and more importantly, to bring substantial value
to the firm shareholders. As such, the diversity of gender, race and, to a lesser extent, director
age is also noteworthy in this evolving board composition mix (Goergen et al., 2015). A board
that has a good mix of directors with different age, experience and youthful perspectives is
more likely to balance the insight and experience that comes from older directors with longer
tenure and the new ideas introduced by younger as well as less-experienced counterparts
(Pesamaa et al., 2008). Such age-diverse boards may indeed benefit a bank in providing a range
of viewpoints and experiences (Zhou et al., 2019). However, to date, there is no empirical study
that tests the age difference between Chairs and CEOs within banks in LSE. This study,
therefore, provides incremental knowledge to the extant literature by setting the following
research questions: does age dissimilarity between the Chair and the CEO improve board
monitoring, and in turn, LSE bank performance?
2.2. Age and age similarity
Homophily theory argues that a less effective governance of the board comprises
demographic and social similarity between CEOs and other directors. The reason is that they
are likely to communicate with each other and ensure more affirmative feedback, yet
disagreement is limited due to lack of diverse views and opinions (Byrne, 1971; Byrne and
Griffitt, 1973; McPherson et al., 2001). As explained by Schiff (2013), accumulating
misunderstanding and miscommunication from the chronological age gap can lead to conflict
and disgruntlement. He also stated that the generational gap eventually causes real rifts which
damage the firms’ productivity, performance, and morale. Those relationship cracks can be
stemmed from age differences in personal values and/or professional values. For example,
younger professionals may disagree with the amount of supervision required by older seniors;
and older colleagues may expect a certain amount of respect from the young (Schiff, 2013).
Furthermore, the literature has reported a wide range of individual perceptual differences across
age, which importantly attribute to the financial corporation context. For example, age
differences in financial risk perception and financial risk tolerance (e.g., Otani et al., 1992;
Tanaka et al., 2010; Albert and Duffy, 2012; Weber, 2014).
Advocates for this homophily argument find that US boards of directors where the firm’s
CEO has similar shared networks, similar regional or educational background or political
orientation, with other board members, are related to lax governance mechanisms, and hence,
destroy corporate performance (Fraccassi and Tate, 2012; Hwang and Kim, 2009; and Lee et
al., 2014). Nguyen (2012) also finds similar findings for large French organisations.
Interestingly, Westphal and Zajac (1995a) contend that CEOs who can participate in the

5
nomination process for other executive directors are likely to employ directors who have
similar demographic attributes (e.g., age) with them. Similar demographic characteristics
between the board and CEOs are also related to higher CEO compensation. Westphal and Zajac
(1995b) find that to justify the implementation of a CEO’s long-run incentive strategy in the
context of similar demographic attributes between the board and the CEO, human-resource
based explanations (i.e., attracting and retaining talented directors) are more likely to be
employed than agency-based explanations (i.e., conflicts of interest).
Pleffer (1983) indicates that demographic attributes (i.e., age, education, nationality, gender)
influence individual behaviour through affecting on his views, thoughts and attitudes, hence,
his decision-making. Among them, age plays a divergent role to others in forming an
individual’s decision selection because of its multifarious nature and dynamic collection of
personal characteristics which covers his life-time experience. As such, an individual’s
personal attitudes and characteristics are progressively shaped by a diverse set of factors
constituted by aging (Medawar, 1952), hence, continuously influencing his behaviour,
communication, strategic decision-making, information processing and usage, risk-taking,
attitudes, thoughts and commitment to work (e.g., Child, 1974; Hambrick and Mason, 1984;
Rhodes, 1983; Serfling, 2014). Aging, in nature, can be referred to as one of the personal
characteristics of human beings, which constitutes a salient basis for group classification as it
shapes various attitudes or behaviours (Stangor et al., 1992). On this point, Ferris et al. (1991)
contend that the general social context that organisational members interact with each other,
could be established by the vital role of aging. Wagner et al. (1984) then widen this to board
members. They argue that directors having similar age tend to communicate more with each
other and share experience; therefore, they are likely to have similar attitudes, thoughts,
opinions, beliefs and hence, behaviour and decision-making. Additionally, they may
experience the same historical events and social trends that form their life experiences and
moral values. As a result, they tend to be mentally connected and similar minded.
Moreover, theories on Social Identity (Tajfel, 1974) and Self-categorisation (Turner el al.,
1987) support the hypothesis that individual directors are more likely to classify themselves
and other board members into different groups by employing personally meaningful
dimensions which comprise of different demographic categories. This also has some
implications of the age dissimilarity among board members, and in this study, between the
Chair and the CEO. The (substantial) difference in age between these two highest positions of
directors, one is the lead of the board of directors (Chair) and another is the lead of the executive
board (CEO), may classify them into different groups with different viewpoints and less
communications. By contrast, such differences can enhance the monitoring of directors to each
other. Indeed, the age difference among them (Chair-CEO) leads to cognitive conflicts and thus
positively influence their independence and monitoring quality (Goergen et al., 2015).
In general, all the above-mentioned theories possess one common view such that age
dissimilarity between a Chairman and a CEO is likely to create more cognitive conflicts. Such
stronger conflict may lead to higher Chair-CEO independence and monitoring quality.

6
2.3. Chair-CEO age dissimilarity, monitoring intensity and bank performance

The Chairman and the CEO are assigned for different corporate tasks within an institution.
Particularly, the CEO is an executive agent who is responsible for the operations of the
company as a whole. The traditional views on the objectives of the CEO are to maximize the
shareholders’ wealth. Nevertheless, according to the agency theory of Jensen and Meckling
(1976), CEOs may conduct opportunistic behaviours to attain their self-interest at an expense
of the shareholders. Consequently, the board of directors is formed as a governance layer of
firms to monitor and oversee the behaviours and decisions of the CEOs. Chairman is the lead
of the board who is in charge of monitoring CEOs and making final decisions. Therefore, it is
expected that the Chair should maintain an optimal level of independence with the CEOs to
ensure that the monitoring and overseeing board tasks are effectively completed. Similar age
between board members may reduce board effectiveness as the board could be less cognitively
independent such that decisions might not be critically evaluated under different viewpoints of
executives (Goergen et al., 2015). Research on human psychology (see e.g., Rhodes, 1983;
Morris and Venkatesh, 2000; Kooij et al., 2011) argues that age-related dissimilarity could
impact on an individual’s work-related incentive, attitudes towards risks, decision-making and
behaviour patterns. As mentioned earlier, a group including members with similar ages tends
to have the same historical experience and values, fostering similar perceptions, attitudes and
beliefs. Age difference hence may affect group processes, communication and cohesion (e.g.,
Rhodes, 1983; Zenger and Lawrence, 1989; Mehra et al., 1998). The Chair is a key person on
the board, thus has substantial influence on board decisions. Greater age gap between the Chair
and the CEO can lead to more intensive monitoring by two-fold: (i) higher cognitive conflicts,
requiring the Chair to put more efforts to monitor the CEO, hence, increasing his attention on
the CEO actions; (ii) lower information asymmetry, because the Chair tends to ask for more
information from the CEO and in contrast, the CEO is likely to provide more useful information
to persuade board of directors and the Chair to accept their plans and strategies. As such, the
Chair and other board members are informed and reported more fully, whereby they can
monitor the CEO more intensively (Adam and Ferreira, 2007). As a result, agency costs might
be reduced, which is more beneficial to the banks due to their complex agency conflicts.
Different ages encourage both the Chair and the CEO of a bank to behave more cautious to
fulfil their legal and moral accountability. In addition, CEO actions depend on the age
difference between them and the Chair’s monitoring effectiveness. Lower age dissimilarity
between the Chair and the CEO leads to deteriorating board of directors’ monitoring quality,
resulting higher agency problem; on the other hand, better monitoring effectiveness from the
board (i.e., Age difference between the Chair and the CEO is substantial) can improve this
issue through warning CEO actions.
Accordingly, we anticipate that (substantial) age dissimilarity may positively influence on
the firm performance within banks, leading to our hypothesis:
Hypothesis: There is a significant and positive relationship between the Chair-CEO age
dissimilarity and bank financial performance

7
3. Methodology, sample selection and descriptive statistics

3.1. Methodology and measures

To examine the above hypothesis, we utilise the traditional Pooled Ordinary Least Square
(OLS) with robust standard errors, which can address serial correlation and Heteroskedasticity.
This method is widely used in previous corporate governance literature (e.g., Goergen et al.,
2015; Pathan, 2009; Laeven and Levine, 2009; Berger et al., 2014; Minton et al., 2014). We,
therefore, set the empirical base model as follows:

𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒𝑖,𝑡 = 𝛽0 + 𝛽1 𝑪𝒉𝒂𝒊𝒓 − 𝑪𝑬𝑶 𝑨𝒈𝒆 𝑮𝒂𝒑𝑖,𝑡 + 𝛽2 Group 1 + 𝛽3 Group 2 +

𝛽4 Group 3 + 𝛽5 Group 4 + µ𝑌𝑒𝑎𝑟 𝑒𝑓𝑓𝑒𝑐𝑡𝑠 + 𝜀𝑖,𝑡 (1)

Where Performancei,t represents for the banks’ financial performance measured by their return
on assets (ROA). It is the ratio between the net profit and the total assets of a bank (Elyasiani
and Zhang, 2015; Gerged and Agwili, 2020; Leelhaphunt and Suntrayuth, 2020). This indicator
allows managers to know how much the bank asset value has brought about so that changes
can be made to increase profitability for the firm. In the sensitivity test, return on equity (ROE),
which is the index between profits and shareholder’s equity, is employed alternatively
(Elyasiani and Zhang, 2015). It helps business owners acknowledge the profits they earned
relative to the amount of money they have invested. Thus, the business owner may make
appropriate adjustments to improve the index.
Chair-CEO Age Gapi,t variable, which is the study’s main independent variable representing
the age difference between the Chair and the CEO of banks. The variable is measured by three
alternative methods. First, a dummy variable is employed, which is set to 1 if the age difference
between the Chair and the CEO (i.e., Gap20 Chair-CEO) is at least 20 years (generational gap).
In other words, 20 years is the cut-off for the generational gap, which is identified in sociology
literature. With this sufficient gap, the viewpoint among individuals might be significantly
different leading to higher monitoring of the Chairman and the CEO. This measure is consistent
with the sociology literature (e.g., Strauss and Howe, 1997). We use a generational gap because
cognitive conflicts between the Chair and the CEO might be strongest as both directors are
from different generations (see Goergen et al., 2015). Second, we followed the previous work
of Goergen et al. (2015) by using the chronological age difference between the Chair and the
CEO (+/-) (i.e., Chair-CEO age difference). It is calculated by subtracting the age of the CEO
from the age of the Chair and then taking its square (i.e., Squared Chair-CEO age difference).
In this regard, it is imperative to consider that cognitive conflicts, but also communication
problems, between two directors may not only arise when the Chair is considerably older than
the CEO, but also when the Chair is younger than the CEO. If the linkage between Chair-CEO
age difference and bank performance is non-linear and if the sign of the age difference does
not matter, only the Squared Chair-CEO age difference is predicted to be significant. Lastly,
we employ the absolute value of the age difference between the Chair and the CEO (i.e., Chair-
CEO age difference absolute). This proxy and the Gap20 Chair-CEO are utilised in
conjunction with a dummy measure of Chair Younger, which is set as 1 if the Chair is younger
than CEO and 0 otherwise. According to the above argument, we will not anticipate a
significance of this dummy variable.

8
 We use a set of control variables which are widely used in previous corporate governance
studies (e.g., Fich and Shivdasani, 2006; Fortin et al., 2010; Field et al., 2013; Minton et al.,
2014; Elyasiani and Zhang, 2015). They are classified into four groups. The first group (Group
1) include Chair Younger variable which is a dummy variable taking the value of 1 if the Chair
is younger than the CEO and otherwise 0; and Board Gender diversity measured by the
percentage of female directors on the board (Goergen et al., 2015; Paweenawat, 2019). The
second group (Group 2), which is Chair characteristics, comprises of Chair Tenure (capturing
the Chair’s power, which is measured by the number of years the Chair has been serving on
the board of directors) and Busy Chair (Binary variable, taking value of 1 if the Chair holds
two or more additional directorships, 0 otherwise) (see Fich and Shivdasani, 2006). The third
group (Group 3) of control variables includes CEO characteristics (see Goyal and Park, 2002;
Adams et al., 2005; Pathan, 2009; Brookman and Thistle, 2009; Kaplan et al., 2012; Onali et
al., 2016) such as CEO Tenure (CEO power, measured by the number of years the CEO has
been serving as the firm’s CEO); Busy CEO (binary variable, taking value of 1 if the CEO
holds two or more additional directorships, 0 otherwise). The final group (Group 4) captures
the bank-level characteristics, including Book Leverage (Total debt divided by total assets) (see
Goergen et al., 2015); and Capital Expenditure (capital expenditure of the bank divided by
total assets) (see Goergen et al., 2015). Full definition description of those variables above is
presented in Table 1. Furthermore, we use year dummy variables to control for year fixed-
effect.

Table 1:
Variable definition. This table reports full definition description of all variables used in this study.
Variable Abbreviations Definition
Return on assets ROA Net profit over total assets
Return on equity ROE Net profit over total equity
Gap20 Chair-CEO Gap20 Chair-CEO Dummy variable, taking value of 1 if the age
difference between the Chair and the CEO is at
least 20 years (generational gap), 0 otherwise.
Chair-CEO age Chair-CEO age The age of the Chair minus the age of the CEO.
difference (+/-) difference It could be positive or negative value.
Squared Chair-CEO Squared Chair-CEO Square of the age of the Chair minus the age of
age difference age difference the CEO
Chair-CEO age Chair-CEO age the absolute value of the age difference between
difference absolute difference absolute the Chair and the CEO
Chair Younger Chair Younger Dummy variable, taking the value of 1 if the
Chair is younger than the CEO and otherwise 0
Board Gender Board Gender The percentage of female directors on the
diversity board, measured by the number of female
directors divided by the number of directors on
board
Chair Tenure Chair Tenure The number of years the Chair has been serving
on the board of directors
Busy Chair Busy Chair Dummy variable, taking value of 1 if the Chair
holds two or more additional directorships, 0
otherwise
CEO Tenure CEO Tenure The number of years the CEO has been serving
as the firm’s CEO

9
 Busy CEO Busy CEO Dummy variable, taking value of 1 if the CEO
holds two or more additional directorships, 0
otherwise
Book Leverage Book Leverage Total debt divided by total assets
Capital Expenditure Capital Expenditure Capital expenditure of the bank divided by total
assets

3.2. Sample selection

We begin by gathering information on all listed commercial banks traded on London Stock
Exchange (LSE) All-Share for each year for the period of 1989 to 2017. This results in an
unbalanced panel of 243 bank-year observations for 22 banks. We excluded banks with full
investment service because investment banks have different operations and products from their
commercial counterparts, hence, including them into the sample can produce inconsistent
results. However, we find that all 22 banks do not provide full-investment service. We also
excluded from the sample any banks having less than three-year data availability. This leads to
the exclusion of 4 bank-year observations. This leaves the sample with a final unbalanced panel
consisting of 239 bank-year observations for 18 firms, covering approximately 90% of the
market capitalisation of all LSE listed banks at the end of 2017. For Chair’s and CEO’s aging
data, corporate governance variables (e.g., board size, board independence) and some bank-
level data (e.g., bank age, bank size), they are hand-collected from individual annual reports
which are published in their official websites, company filings (e.g., security prospectuses or
governance reports). Any remaining gaps in the data (particularly age) are filled by retrieving
information from Bloomberg database, which is also the source for other accounting and
financial data of this study.

3.3. Descriptive statistics

Table 2 reports descriptive statistics for our dataset. Return on assets (ROA) is the main
dependent variable while return on equity (ROE) is the alternative measure for bank
performance. The mean (median) of ROA and ROE is 1.02 (0.776) and 10.607 (12.288),
respectively. For the measures of age gap between the Chair and the CEO, we provide a
descriptive of three alternative proxies, which are Gap20 Chair-CEO, Chair-CEO age
difference (+/-) and Chair-CEO age difference absolute. The descriptive of the former shows
that the Chair-CEO age generational gap (i.e., at least 20 years) accounts for 11.7% of all
observations. Importantly, the absolute age difference between the Chair and the CEO is 10.4
years, relatively similar to the number (11.4 years) reported in the study of Goergen et al.
(2015). The Chair is younger (Chair Younger) than the CEO for 10.5% of all observations. In
addition, the women serving on the board accounts for 15.3% of all observations. In terms of
Chair characteristics, average Chair tenure is 3.4 years. Furthermore, for 90% of all
observations the Chair is serving in at least two outside boards. Turning to the CEO
characteristics, for 64% of all observations the CEO is busy. Average CEO Tenure is 3.6 years.
Moreover, the book leverage shows a mean of 4.6 which is greater than 1, implying that banks
in our sample have a highly leveraged structure. Finally, the capital expenditures amount to
1.55% total assets.

10
 Table 2:
Summary statistics. This table reports summary statistics of all variables used in the tested models.
Definitions of those variables are provided in Table 1.
Variables N mean median Std. min max
ROA 239 1.020 0.776 1.791 -6.361 12.797
ROE 239 10.607 12.288 15.774 -141.453 72.906
Gap20 Chair-CEO 239 0.117 0 0.322 0 1
Chair-CEO age difference absolute 239 10.385 10 6.883 0 32
Chair-CEO age difference (+/-) 239 10.285 10 7.033 -5 32
Chair younger 239 0.105 0 0.307 0 1
Board gender diversity 239 0.153 0.143 0.096 0 0.4
Busy Chair 239 0.900 1 0.301 0 1
Chair Tenure 239 3.406 2 4.156 0 25
Busy CEO 239 0.640 1 0.481 0 1
CEO Tenure 239 3.556 3 3.657 -1 19
Book Leverage 239 4.639 3.712 3.571 0 20.415
CapEx/TA 239 0.016 0.000 0.015 -0.071 2.09

Pearson Pair-wise correlation matrix among independent variables employed in the models
are presented in Table 3. All significant coefficients are within accepted range (<0.8),
suggesting that multicollinearity will not be a problem of the study. We winsorise variables to
control for outliers if any. Notes that pairs of variables (2-3) are not included in a single model.
Their correlations are irrelevant for multicollinearity problems.

11
Table 3:
Pearson Pair-wise Correlation Matrix. The table presents the correlation matrix among all independent variables which are used in this study. All significant
correlation coefficients are marked in bold (<5%). Variables definition is presented in Table 1.

1 2 3 4 5 6 7 8 9 10 11

1. Gap20 Chair-CEO 1
2. Chair-CEO age difference absolute 0.660 1
3. Chair-CEO age difference (+/-) 0.651 0.993 1
4. Chair Younger -0.125 -0.493 -0.524 1
5. Chair Tenure 0.078 0.041 0.039 0.069 1
6. Busy Chair 0.055 -0.0603 -0.055 0.115 0.12 1
7. Busy CEO 0.002 -0.123 -0.129 0.199 0.185 0.065 1
8. CEO Tenure -0.180 -0.107 -0.096 0.124 0.097 0.547 0.136 1
9. Board gender -0.010 0.097 0.100 -0.083 0.065 -0.039 -0.068 0.073 1
10. Book Leverage -0.142 -0.096 -0.101 0.148 0.022 -0.159 -0.056 -0.020 -0.071 1
11. CapEx/TA 0.065 0.067 0.067 -0.035 0.034 -0.067 0.082 -0.023 -0.029 -0.132 1

12
4. Finding and analysis: Chair-CEO age dissimilarity and bank performance

4.1 Bivariate analysis

We initially consider the bivariate analysis for the association between Chair-CEO age
dissimilarity and bank performance (i.e., ROA), which is presented in Table 4. All regressions
adjust for year-fixed effects and show significantly positive coefficients on ROA across all
three proxies of Chair-CEO age dissimilarity (i.e., Gap20 Chair-CEO; Chair-CEO age
difference absolute and Chair-CEO age difference). These results suggest that the larger the
age gap between the Chair and the CEO, the better the banking performance. This can be
explained by the homophily theory which argues that different ages tend to enhance monitoring
incentives and effectiveness of the Chair on the executive CEO. This prediction is more likely
when applying for banks which have high demand for monitoring, consistent with agency
theory.
Table 4:
Chair-CEO age dissimilarity and bank performance (ROA). This table reports bivariate analysis results
of ROA on measures of age dissimilarity between the Chair and the CEO for listed LSE banks in the
sample period 1989-2017. ROA is calculated as the return on total assets. Regressions (1) to (3) show
the effects of different measures for age dissimilarity on ROA. Gap20 Chair-CEO is a binary variable
taking value of 1 if the age difference between the Chair and the CEO is at least 20 years, 0 otherwise.
Chair-CEO age difference (+/-) is the age difference between the Chair and the CEO, computed as the
age of the Chair minus the age of the CEO. Chair-CEO age difference absolute is the absolute value of
the age difference between the Chair and the CEO. The constant is included in all regressions.
(1) (2) (3)
VARIABLES ROA ROA ROA
Gap20 Chair-CEO 0.964**
(0.011)
Chair-CEO age difference (+/-) 0.051***
(0.001)
Chair-CEO age difference absolute 0.052***
(0.002)
Constant 0.449*** -0.066 -0.068
(0.000) (0.677) (0.671)
Observations 239 239 239
R-squared 0.060 0.069 0.068
Robust p-value in parentheses
*** p<0.01, ** p<0.05, * p<0.1

However, bivariate analysis has its own limitation as no control variables are included to
capture for other factors related to the firm performance. We, therefore, subsequently present
the multivariate analysis results when all models include other relevant control factors. By
capturing for other board, Chair and CEO characteristics, and bank-level variables, we expect
to find more precise and reliable findings of the relationship between Chair-CEO age
dissimilarity and bank performance.
4.2 Multivariate analysis
In this multivariate analysis, we include the sets of control variables introduced in Section
3.1. The regressions vary across alternative measures of Chair-CEO age dissimilarity (Models
1-4, Table 5). Table 5 presents the pooled Ordinary Least Square (POLS) with robust standard

13
errors and year-fixed effects results for the effect of Chair-CEO age dissimilarity and bank
accounting-based performance. In the first regression (Model 1), we tested for the generational
age gap between the Chair and the CEO, i.e., Gap20 Chair-CEO, and find that such measure
has a significant and positive influence on the bank performance (ROA) at 1% significance
level. This result is also obtained in the second and fourth regressions (Models 2 and 4) which
employ Chair-CEO age difference (+/-) and Chair-CEO age difference absolute as main
independent variables, respectively. These findings support for our hypothesis that a positive
relationship between Chair-CEO age dissimilarity and bank performance is more likely and
consistent with those found in bivariate analysis (see Section 4.1) as well as in prior studies
(e.g., Goergen et al., 2015). This can be justified by homophily theory which argues that a
(substantial) difference in aging between the Chair and the CEO, through their interaction
(Ferris et al., 1991), tends to improve the monitoring effectiveness and incentives of the board
of directors, and in turn, positively affect firm performance, especially firms with complex and
high agency costs. In addition, the Chair-CEO age difference is likely to enhance the
differentiation of views and thoughts as these two directors experience the similar historical
events and social trends, and thus, increase their cognitive conflicts which encourages the Chair
in scrutinising the CEO. The Chair, thus, may have different attitudes towards risks and
religious beliefs which strengthen the monitoring activities of the Chair on the CEO’s activities
and decision-making (Goergen et al., 2015).
Regression 3 (Model 3) includes the signed age difference (+/-) as well as the square of
Chair-CEO age difference. The purpose to include such a square variable is to test whether
there is a non-linear relationship between the Chair-CEO age dissimilarity and bank
performance. The result shows that while the simple Chair-CEO age difference is significant
at 5%, its square becomes insignificant. This implies a linear association between age
dissimilarity and ROA. Moving to the control variables across all models tested, we
consistently find positive effects of CEO Tenure and CapEx/TA on the firm performance whilst
the influences of Chair Younger and Board Gender diversity are significantly negative.
To sum up, there is consistently strong across all regression models that the Chair-CEO age
difference is statistically and significantly related to greater firm profitability. Importantly and
in line with our main hypothesis, a generational age gap between the Chair and the CEO are
associated with high firm performance at 1%. The cognitive conflicts between these two
directors should be strongest as they are from different generations which increases the
monitoring incentives to each other (see Goergen et al., 2015).

Table 5:
Chair-CEO age dissimilarity and bank performance (ROA). This table presents multivariate analysis
(i.e. Pooled Ordinary Least Square OLS) results of ROA on measures of age dissimilarity between the
Chair and the CEO, other board and Chair/CEO characteristics, and bank-level factors for listed LSE
banks in the sample period 1989-2017. ROA is calculated as the return on total assets. Regressions (1)
to (4) show the effects of different measures for age dissimilarity on ROA. Gap20 Chair-CEO is a
binary variable taking value of 1 if the age difference between the Chair and the CEO is at least 20
years, 0 otherwise. Chair-CEO age difference (+/-) is the age different between the Chair and the CEO,
computed as the age of the Chair minus the age of the CEO. Chair-CEO age difference absolute is the
absolute value of the age difference between the Chair and the CEO. All other control variables are
presented in Table 1. Year-fixed effects and robust standard errors OLS are applied. The constant is
included in all regressions.

14
 (1) (2) (3) (4)
VARIABLES ROA ROA ROA ROA
Gap20 Chair-CEO 0.910***
(0.003)
Chair-CEO age difference (+/-) 0.051*** 0.078**
(0.000) (0.019)
Squared Chair-CEO age difference -0.001
(0.387)
Chair-CEO age difference absolute 0.050***
(0.000)
Chair younger -0.512** -0.078
(0.027) (0.753)
Busy Chair 0.205 0.193 0.185 0.198
(0.296) (0.295) (0.304) (0.288)
Chair Tenure 0.025 0.038 0.041 0.039
(0.379) (0.180) (0.141) (0.170)
Busy CEO 0.008 0.047 0.065 0.052
(0.961) (0.774) (0.689) (0.748)
CEO Tenure 0.103*** 0.082*** 0.080*** 0.082***
(0.001) (0.004) (0.005) (0.004)
Book Leverage 0.558 0.171 0.136 0.158
(0.639) (0.886) (0.911) (0.897)
Board Gender -0.255*** -0.259*** -0.258*** -0.258***
(0.000) (0.000) (0.000) (0.000)
CapEx/TA 0.053*** 0.053*** 0.053*** 0.053***
(0.000) (0.000) (0.000) (0.000)
Constant 0.233 -0.302 -0.482 -0.313
(0.259) (0.206) (0.107) (0.199)
Year dummies YES YES YES YES
Observations 239 239 239 239
R-squared 0.562 0.566 0.567 0.566
Robust p-value in parentheses
*** p<0.01, ** p<0.05, * p<0.1

6. Sensitivities and Robustness Checks

6.1 The effect of financial crisis

We further investigate whether and how the financial crisis 2007-2009 influenced the
association between Chair-CEO age dissimilarity and bank performance. The financial crisis
is controlled because it constitutes an exogenous shock (see, e.g., Erkens et al., 2012). Despite
our results (see Table 6, Models 1-3) are contradict with the findings of Goergen et al. (2015),
we interestingly find that the financial crisis helps strengthen the positive effects of the Chair-
CEO age dissimilarity on bank performance (i.e., positive coefficients on interactions between
measures of age dissimilarity and financial crisis dummy variable). This can be reasonably
explained by the fact that larger age difference among the Chair and the CEO decreases mutual
attraction among them and hence, exhorts the cognitive independence of directors, leading to
rising cognitive conflict (see e.g., McPherson et al., 2001; Forbes and Milliken, 1999; Amason,
1996). Therefore, during the fundamental period of financial crisis for banks, CEOs’ decisions
and their propounded actions might be monitored and reviewed more comprehensively and by

15
the Chair. In addition, CEOs may be required to submit and provide more useful information
to persuade the board of directors and the Chair to accept their plan and strategy. Consequently,
the Chair and other board members can be informed and reported more fully and effectively
(Adam and Ferreira, 2007). This might be substantially beneficial to the banks when they
encounter the crisis as the board of directors can access in-depth and complete information to
evaluate more fully and accurately the current situation of their banks and as a result, promotes
firm performance during crisis.
Table 6:
The effect of financial crisis. This table presents multivariate analysis (i.e. Pooled Ordinary Least Square
OLS) results of ROA on measures of age dissimilarity between the Chair and the CEO, other board and
Chair/CEO characteristics, and bank-level factors for listed LSE banks in the sample period 1989-2017.
ROA is calculated as the return on total assets. Regressions (1) to 3) show the effects of different
measures for age dissimilarity on ROA. Gap20 Chair-CEO is a binary variable taking value of 1 if the
age difference between the Chair and the CEO is at least 20 years, 0 otherwise. Chair-CEO age
difference (+/-) is the age different between the Chair and the CEO, computed as the age of the Chair
minus the age of the CEO. Chair-CEO age difference absolute is the absolute value of the age difference
between the Chair and the CEO. Financial crisis is a dummy variable taking value of 1 if the observed
year is 2007, 2008 or 2009. All other control variables are presented in Table 1. Year-fixed effects and
robust standard errors OLS are applied. The constant is included in all regressions.
(1) (2) (3)
VARIABLES ROA ROA ROA
Gap20 Chair-CEO 0.907***
(0.005)
Chair-CEO age difference (+/-) 0.041***
(0.001)
Chair-CEO age difference absolute 0.043***
(0.001)
Financial Crisis 1.581*** 0.767* 0.727*
(0.004) (0.051) (0.096)
Gap20 Chair-CEO* Financial Crisis 0.059
(0.926)
Chair-CEO age difference absolute* Financial Crisis 0.102**
(0.033)
Chair-CEO age difference* Financial Crisis 0.101**
(0.025)
Chair younger -0.512** 0.022
(0.028) (0.930)
Busy Chair 0.204 0.142 0.148
(0.296) (0.428) (0.414)
Chair Tenure 0.025 0.041 0.042
(0.378) (0.136) (0.132)
Busy CEO 0.009 0.087 0.087
(0.959) (0.589) (0.587)
CEO Tenure 0.103*** 0.077*** 0.077***
(0.001) (0.007) (0.007)
Board Gender 0.557 -0.026 -0.021
(0.642) (0.982) (0.986)
Book Leverage -0.255*** -0.266*** -0.267***
(0.000) (0.000) (0.000)
CapEx/TA 0.053*** 0.053*** 0.054***
(0.000) (0.000) (0.000)
Constant 0.233 -0.185 -0.209

16
 (0.260) (0.404) (0.357)
Year dummies YES YES YES
Observations 239 239 239
R-squared 0.562 0.577 0.577
Robust p-value in parentheses
*** p<0.01, ** p<0.05, * p<0.1

6.2 Alternative measure for bank performance

To check whether the results changed when using different measures for bank performance,
we additionally re-tested all the main regressions by replacing ROA by its alternative measure
(return on equity – ROE) – see Table 7 (Models 1-4). This measure appears to better reflect the
increase or decrease in the wealth of shareholders. Using the same method and same sets of
control variables, we find that the main results achieved from Table 5 remained unchanged and
hence, our story is strongly supported by both ROA and ROE. In unreported results, we also
replace ROA by the firm market capitalisation (share prices multiplied by the number of share
outstanding) and Tobin’s Q which represented for the stock market value, the beneficial effects
of age difference between the Chair and the CEO are still revealed, consistent with the findings
of Goergen et al. (2015). All results (main and sensitivity tests) provide strong support for the
fact that when the need for monitoring of the board (e.g., via the Chair) on the managers’
(CEOs’) activities increases (e.g., the cases of banks), the positive impacts of age (substantial)
difference between the Chair and the CEO have more chances to exhibit, and in turn, enhance
firm profitability as well as firm value.
Table 7:
Sensitivity tests: Chair-CEO age dissimilarity and bank performance (ROE). This table presents
multivariate analysis (i.e. Pooled Ordinary Least Square OLS) results of ROE on measures of age
dissimilarity between the Chair and the CEO, other board and Chair/CEO characteristics, and bank-
level factors for listed LSE banks in the sample period 1989-2017. ROE is calculated as the return on
total equity. Regressions (1) to (4) show the effects of different measures for age dissimilarity on ROE.
Gap20 Chair-CEO is a binary variable taking value of 1 if the age difference between the Chair and the
CEO is at least 20 years, 0 otherwise. Chair-CEO age difference (+/-) is the age different between the
Chair and the CEO, computed as the age of the Chair minus the age of the CEO. Chair-CEO age
difference absolute is the absolute value of the age difference between the Chair and the CEO. All other
control variables are presented in Table 1. Year-fixed effects and robust standard errors OLS are
applied. The constant is included in all regressions.
(1) (2) (3) (4)
VARIABLES ROE ROE ROE ROE
Gap20 Chair-CEO 9.870***
(0.001)
Chair-CEO age difference (+/-) 0.378** 0.408
(0.040) (0.450)
Squared Chair-CEO age difference -0.001
(0.941)
Chair-CEO age difference absolute 0.294**
(0.044)
Chair younger -6.191 -4.084
(0.225) (0.400)
Busy Chair -0.069 0.430 0.421 0.706
(0.978) (0.866) (0.869) (0.776)
Chair Tenure -0.077 0.039 0.042 0.061
(0.709) (0.851) (0.830) (0.760)

17
Busy CEO 0.476 0.533 0.554 0.835
(0.786) (0.781) (0.761) (0.638)
CEO Tenure 1.381*** 1.095*** 1.094*** 1.092***
(0.001) (0.005) (0.004) (0.005)
Board Gender 7.444 1.702 1.662 0.268
(0.577) (0.894) (0.898) (0.984)
Book Leverage -1.372** -1.417** -1.416** -1.360**
(0.021) (0.032) (0.030) (0.025)
CapEx/TA 0.113** 0.117** 0.117** 0.117**
(0.039) (0.041) (0.040) (0.047)
Constant 8.339*** 4.306 4.107 4.449
(0.009) (0.151) (0.263) (0.136)
Year dummies YES YES YES YES
Observations 239 239 239 239
R-squared 0.368 0.346 0.346 0.350
Robust p-value in parentheses
*** p<0.01, ** p<0.05, * p<0.1

6.3 Adding more control variables

We additionally control for more variables including CEO age, Log of Board Size, Board
independence, Log of Total Assets and Log of Bank Age. CEO age is measured by the
difference between the observed year and CEO’s birth year. Log of Board size is calculated as
the natural logarithm form of the number of directors serving on board, while board
independence represents the percentage of independent directors on board. Log of Total Assets
and Log of Bank Age represent the bank size and bank age which are measured by the natural
logarithm form of total assets and bank age (difference between the first time the bank appeared
and the observed year). Table 8 reports results after we include all these control variables into
our empirical models to capture for CEO age as highlighted in literature (e.g., Serfling, 2014),
corporate governance quality and bank-level characteristics (e.g., Singh et al., 2019; Elnahass
et al., 2020a. b; Trinh et al., 2020a; Trinh et al., 2020d). They are potentially determinants of
bank performance in our empirical setting. We find that our main results are unchanged even
if we add more control variables. The signs of controls are consistent with previous studies.
Table 8:
Chair-CEO age dissimilarity and bank performance (ROA). This table presents multivariate analysis (i.e.
Pooled Ordinary Least Square OLS) results of ROA on measures of age dissimilarity between the Chair
and the CEO, other board and Chair/CEO characteristics, and bank-level factors for listed LSE banks in
the sample period 1989-2017. ROA is calculated as the return on total assets. Regressions (1) to (4) show
the effects of different measures for age dissimilarity on ROA. Gap20 Chair-CEO is a binary variable
taking value of 1 if the age difference between the Chair and the CEO is at least 20 years, 0 otherwise.
Chair-CEO age difference (+/-) is the age different between the Chair and the CEO, computed as the
age of the Chair minus the age of the CEO. Chair-CEO age difference absolute is the absolute value of
the age difference between the Chair and the CEO. Year-fixed effects and robust standard errors OLS
are applied. The constant is included in all regressions.
(1) (2) (3) (4)
VARIABLES ROA ROA ROA ROA

Gap20 Chair-CEO 0.279***

(0.000)
Chair-CEO age difference (+/-) 0.044*** 0.011**

18
 (0.000) (0.012)
Squared Chair-CEO age difference -0.001
(0.502)
Chair-CEO age difference absolute 0.038***
(0.000)
Chair younger -1.289*** -1.829*** -1.637*** -1.685***
(0.002) (0.000) (0.001) (0.000)
Busy Chair 0.395* 0.496** 0.482** 0.463**
(0.090) (0.033) (0.035) (0.040)
Chair Tenure 0.048 0.046 0.045 0.046
(0.317) (0.312) (0.325) (0.312)
Busy CEO 0.119 0.105 0.104 0.113
(0.536) (0.569) (0.577) (0.543)
CEO Tenure 0.064** 0.062** 0.060** 0.062**
(0.025) (0.023) (0.026) (0.025)
CEO Age -0.001 -0.001 -0.001 -0.001
(0.387) (0.300) (0.343) (0.312)
Log of Board Size 0.016 0.016 0.017 0.016
(0.406) (0.382) (0.349) (0.387)
Board Independence -1.120* -1.349** -1.387** -1.344**
(0.075) (0.042) (0.040) (0.044)
Book Leverage -0.111*** -0.092** -0.095** -0.095**
(0.003) (0.013) (0.011) (0.012)
Board Gender 1.010 0.935 0.971 0.977
(0.360) (0.371) (0.357) (0.350)
CapEx/TA 0.032*** 0.030*** 0.030*** 0.030***
(0.000) (0.000) (0.000) (0.000)
Log of Total Assets 0.279*** 0.304*** 0.301*** 0.303***
(0.000) (0.000) (0.000) (0.000)
Log of Bank Age 0.002* 0.002* 0.002* 0.002*
(0.089) (0.052) (0.063) (0.059)
Constant 3.326*** 4.086*** 3.858*** 4.037***
(0.000) (0.000) (0.000) (0.000)
Year dummies YES YES YES YES
Observations 236 236 236 236
R-squared 0.741 0.751 0.752 0.749
Robust pval in parentheses
*** p<0.01, ** p<0.05, * p<0.1

6.4 Potential endogeneity concerns and the Two-step system Generalized Method of Moments
This additional test solves two types of endogeneity concerns. The first is the unobserved
Chair and CEO heterogeneity. Indeed, certain Chair and CEO characteristics are likely to be
significantly correlated with our measures for the Chair-CEO age dissimilarity which can result
in spurious regression findings. For instance, the Gap20 Chair-CEO measure can be correlated
with the Chair’s and the CEO’s prior industry and management experience. Although we have
tried to include some Chair and CEO experience measures such as Chair and CEO Tenure and
whether they are busy or not, we do not fully control for other experience and other time-
invariant heterogeneity. The second endogeneity concern is the dynamic endogeneity (Goergen
et al., 2015) which refers to previous realisations of the dependent variable influencing current
levels of some or all of the explanatory variables (Wintoki et al., 2012). While past board
structure may influence current bank performance, current board structure may also be a result

19
of past bank performance (Wintoki et al., 2012). Specially, poor profitability in the past might
cause a substantial change in board members (e.g., replacing young Chair by an older one). To
partially solve this problem, we followed the design of Goergen et al. (2015) and other
corporate governance studies (e.g., Pathan, 2009), to apply the Two-step system Generalized
Method of Moments (GMM) (e.g., Blundell and Bond, 1998). As can be seen from Table 9
(Models 1-4), GMM results are still consistent with the main results obtained from traditional
POLS technique, suggesting that our findings are not driven by omitted variable bias,
heterogeneity and/or dynamic endogeneity issues. We, consistently, conclude that across
different measures of dependent and independent variables as well as across different model
specifications, Chair-CEO age difference is likely to be positively associated with high
profitability (ROA, ROE and even firm stock market value).
Table 9:
Dynamic panel data models (system GMM estimations). This table presents results of the dynamic,
system GMM regressions of ROA on measures of age dissimilarity between the Chair and the CEO,
other board and Chair/CEO characteristics, and bank-level factors for listed LSE banks in the sample
period 1989-2017. ROA is calculated as the return on total equity. Regressions (1) to (4) show the
effects of different measures for age dissimilarity on ROA. Gap20 Chair-CEO is a binary variable
taking value of 1 if the age difference between the Chair and the CEO is at least 20 years, 0 otherwise.
Chair-CEO age difference (+/-) is the age different between the Chair and the CEO, computed as the
age of the Chair minus the age of the CEO. Chair-CEO age difference absolute is the absolute value of
the age difference between the Chair and the CEO. All other control variables are presented in Table 1.
Year-fixed effects and robust standard errors GMM are applied. The constant is included in all
regressions. Running the dynamic panel estimations, all results remain unchanged compared to main
results in Table 4. Both, AR (1) and AR (2), are tests for first-order and second-order autocorrelation.
The Hansen test of over-identification is based on the null hypothesis that all instrumental variables
(IVs) are valid. All results for these tests suggest a satisfaction of models’ diagnostics which might
produce reliable findings.
(1) (2) (3) (4)
VARIABLES ROA ROA ROA ROA
Lagged of ROA 0.402*** 0.405*** 0.519*** 0.405***
(0.001) (0.000) (0.000) (0.000)
Gap20 Chair-CEO 0.618*
(0.087)
Chair-CEO age difference (+/-) 0.034*** 0.085*
(0.005) (0.079)
Squared Chair-CEO age difference -0.002
(0.144)
Chair-CEO age difference absolute 0.034***
(0.005)
Chair younger -0.383 -0.068 0.222 -0.097
(0.204) (0.778) (0.555) (0.702)
Busy Chair 0.112 0.080 0.108 0.083
(0.462) (0.568) (0.462) (0.549)
Chair Tenure 0.015 0.026 0.025 0.026
(0.577) (0.266) (0.179) (0.258)
Busy CEO -0.104 -0.092 -0.061 -0.090
(0.496) (0.495) (0.628) (0.507)
CEO Tenure 0.060* 0.047 0.033 0.047*
(0.082) (0.101) (0.280) (0.099)
Book Leverage -0.040 -0.312 -0.210 -0.316
(0.969) (0.803) (0.830) (0.801)
Board Gender -0.152*** -0.151*** -0.130** -0.151***

20
 (0.003) (0.002) (0.011) (0.001)
CapEx/TA 0.026** 0.032** 0.020* 0.032**
(0.010) (0.015) (0.078) (0.015)
Constant 1.174* -0.598 1.015** 1.074
(0.066) (0.414) (0.015) (0.100)
Year dummies YES YES YES YES
Observations 221 221 221 221
Number of BANK 18 18 18 18
Wald Chi (p-value) 0.000 0.000 0.000 0.000
AR(1) (p-value) 0.030 0.027 0.031 0.027
AR(2) (p-value) 0.758 0.596 0.789 0.585
Hansen test for over-identification (p- 0.138 0.185 0.803 0.184
value)
Robust p-value in parentheses
*** p<0.01, ** p<0.05, * p<0.1

7. Conclusion
Previous studies have highlighted the fundamental role of the Chair on corporate boards
under either one-tier or two-tier governance systems. However, few studies focus on how the
Chair characteristics influence bank governance effectiveness. Also, no efforts to date are
conducted for the LSE listed commercial banks on the determinants of the important
association between the Chair and the CEO. Under the acknowledgement that banks are unique,
opaque, and more complex than non-financial and other financial firms in terms of activities,
products and governance mechanisms, they are likely to have higher monitoring needs from
the board of directors, especially from its Chair, on managers. This study, therefore, emphasises
the Chair-CEO relation and how it can influence bank financial performance. We hypothesise
that the (substantial) age difference between the Chair and the CEO leads to cognitive conflict
between them, which in turn, results in more intensive scrutinising of the latter and ultimately
greater profitability. To test this hypothesis, we examine the effect of the Chair-CEO age
dissimilarity on bank performance. Our estimated sample of LSE banks considerably reduces
endogeneity concerns as a steadily increasing number of firms and banks in this country are
abandoning CEO duality (Goergen et al., 2015).
We find strong evidence that a higher Chair-CEO age difference (particularly, a generational
age gap) is likely to increase bank performance. This finding supports the main hypothesis and
remains relatively stable across all alternative measures for dependent and independent
variables as well as across alternative model specifications (before and after controlling for
omitted variable bias, heterogeneity and dynamic endogeneity issues). We find that a financial
crisis helps strengthen the positive effects of the Chair-CEO age dissimilarity on bank
performance. This is consistent with the view that a larger age difference among the Chair and
the CEO might be substantially beneficial to a bank when they encounter a crisis, as the board
of directors might be provided better information from the CEO to help them evaluate fully
their bank’s situation, find sound solutions and promote firm performance. The insights of our
study are valuable to banks and their shareholders as they can give them a profound
understanding and awareness of the optimal Chair-CEO.

21
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26
Biography:
Vu Quang Trinh (PhD) is a Lecturer (Assistant Professor) in Accounting & Finance at
Newcastle University, UK. He is recognised as an international researcher in the areas of
corporate governance, female leadership and global financial management. His publications
appear in internationally excellent research journals such as The European Journal of Finance,
International Review of Financial Analysis, Journal of International Financial Markets,
Institutions and Money, Review of Quantitative Finance and Accounting, International Journal
of Finance and Economics, Global Finance Journal, International Journal of Banking,
Accounting and Finance, etc. He has also several papers submitted to world-leading journals.

Ngan Duong Cao (PhD) is the Lecturer (Assistant Professor) in Accounting at University of
Bath (UK). At the heart of her research agenda is a desire to better understand individuals’
decision making under risk and uncertainty and over time in the context of investment
behaviour, how these may change over the life span, and how one’s psychological
predispositions may mediate this process. Her publications appear in International Review of
Financial Analysis, etc.

Loc Thanh Phan is an independent researcher. He obtained his master degree from
Northumbria university (UK) and currently working in Vietnam.

Mary Nanyondo (PhD) is an Assistant Professor in Accounting (teaching) at Durham

University Business School, Durham University, UK. She earned her PhD from Bournemouth
University, UK. She has an MSc in accounting and finance and holds a first-class accounting
and finance degree. Prior to joining Durham, she worked at Nottingham Business School,
Nottingham Trent University and the University of East London, both in the UK. Her teaching
is multi-disciplinary, covers accounting related modules delivered at both undergraduate and
postgraduate levels. Her areas of research include SME finance, sustainability, Environmental
management practices (EMPs), corporate governance and corporate social responsibility,
focusing on institutional frameworks in emerging and developing economies.

27