Who Disciplines Bank Managers?

By Andrea M. Maechler, Klaus Schaeck, Martin Cihak, Stéphanie Marie Stolz

December 1, 2009

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Andrea M. Maechler, Klaus Schaeck, Martin Cihak, and Stéphanie Marie Stolz. Who Disciplines Bank Managers?, (USA: International Monetary Fund, 2009) accessed September 21, 2024

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.

Subject: Bank soundness, Banking, Corporate finance, Deposit insurance, Logit models

Keywords: Bank executive, Bank risk, Risk return trade-off, Turnover bank, WP

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/272
Stock No:

WPIEA2009272
ISBN:

9781451874174
ISSN:

1018-5941

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