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Effects of CEO Turnover in Banks: Evidence Using Exogenous Turnovers in Indian Banks

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  • Sarkar, Arkodipta
  • Subramanian, Krishnamurthy
  • Tantri, Prasanna

Abstract

We examine the effects of chief executive officer (CEO) turnover in banks. Incoming bank CEOs face problems of information asymmetry because banks’ operations are opaque and bank risk can change dramatically in a short time. These CEOs may therefore change bank policies to manage their personal risks. Since CEO turnover is usually endogenous, we utilize a setting in which CEO turnover is based solely on retirement age and is thus exogenous to bank performance. Consistent with our thesis, incoming CEOs increase provisioning for future delinquencies and shrink lending. Bank stock prices decline following these changes. Politically motivated lending or ever-greening cannot explain our results.

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  • Sarkar, Arkodipta & Subramanian, Krishnamurthy & Tantri, Prasanna, 2019. "Effects of CEO Turnover in Banks: Evidence Using Exogenous Turnovers in Indian Banks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(1), pages 183-214, February.
    • Handle: RePEc:cup:jfinqa:v:54:y:2019:i:01:p:183-214_00
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    Cited by:

    1. Abhishek Bhardwaj & Krishnamurthy Subramanian & Prasanna Tantri, 2022. "Relationship Banking and Monetary Policy Transmission: Evidence from India," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(8), pages 2341-2375, December.
    2. Masahiro Enomoto & Yusuke Fukaya, 2023. "Top Executive Turnover and Loan Loss Provisions: Evidence from Japanese Regional Banks," Discussion Paper Series DP2023-06, Research Institute for Economics & Business Administration, Kobe University.
    3. Xu, Jian & Zheng, Jiaxing, 2022. "Mass media, air quality, and management turnover," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    4. Silva, Felipe Bastos Gurgel, 2021. "Fiscal Deficits, Bank Credit Risk, and Loan-Loss Provisions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(5), pages 1537-1589, August.
    5. Chemmanur, Thomas J. & Hu, Gang & Li, Yingzhen & Xie, Jing, 2021. "Institutional trading, information production, and forced CEO turnovers," Journal of Corporate Finance, Elsevier, vol. 67(C).
    6. Chahal, Rishman Jot Kaur & Ahmad, Wasim, 2022. "Political connections, investment inefficiency, and the Indian banking crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 16-30.

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