Who Disciplines Bank Managers?

Author/Editor: Cihák, Martin ; Maechler, Andrea M. ; Schaeck, Klaus ; Stolz, Stéphanie Marie
Publication Date: December 01, 2009
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: We bring to bear a hand-collected dataset of executive turnovers in U.S. banks to test the efficacy of market discipline in a 'laboratory setting' by analyzing banks that are less likely to be subject to government support. Specifically, we focus on a new face of market discipline: stakeholders' ability to fire an executive. Using conditional logit regressions to examine the roles of debtholders, shareholders, and regulators in removing executives, we present novel evidence that executives are more likely to be dismissed if their bank is risky, incurs losses, cuts dividends, has a high charter value, and holds high levels of subordinated debt. We only find limited evidence that forced turnovers improve bank performance.
Series: Working Paper No. 09/272
Subject(s): Bank soundness | Bank supervision | Banks | Capital markets | Corporate governance | Data analysis | Economic models | Performance indicators | Personnel | Risk management | United States

Author's Keyword(s): Market discipline | executive turnover | financial soundness | corporate governance
Publication Date: December 01, 2009
Format: Paper
Stock No: WPIEA2009272 Pages: 45
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