Does Managerial Composition Matter? Evidence from Bank Performance and Risk.

This paper examines whether diversity within bank leadership teams is associated with differences in bank performance and risk. Using rich administrative data from Uruguay’s banking system, it combines detailed employment records on senior managers and boards with balance-sheet information for financial institutions over the period 1998–2023. The data allow the construction of time-varying measures of leadership composition, including the Blau index at different organizational levels, which are analyzed using panel regressions with institution and time fixed effects.
The results indicate that diversity measured across all senior leadership positions is not robustly associated with profitability or risk outcomes. By contrast, diversity among senior managers—the group most directly involved in lending and risk-management decisions—exhibits a robust non-linear relationship with asset quality, measured by the non-performing loan ratio, that withstands a battery of robustness checks including wild cluster bootstrap inference. A similar non-linear pattern emerges for profitability, although these estimates are less precisely identified and more sensitive to inference assumptions. Overall, the findings suggest that the relationship between leadership diversity and bank outcomes depends not only on the degree of diversity, but also on the organizational level at which diversity is present, with the strongest and most robust association
operating through credit risk.