Bankers on the Boards of German Firms: What They Do, What They are Worth, and Why They are (Still) There

We analyze the role of bankers on the boards of German non-financial companies for the period from 1994 to 2005. We find that banks that are represented on a firm's board promote their own business as lenders and as M&A advisors. They also seem to act as financial experts who help firms to obtain funding, especially in difficult times. We find little evidence that bankers monitor management and suggest that bankers on the board cause a decline in the valuations of non-financial firms. Banks' equity ownership declined sharply during our sample period and the German financial system lost some of its formerly distinctive features.