Recession CEOs and bank risk taking

We extend the existing literature on the role of CEO personal characteristics in bank risktaking by showing that the economic conditions at the time when bank CEOs enter the labor market have a significant impact on risk-taking. Specifically, using a unique hand-collected dataset of bank CEOs’ career profiles and demographic characteristics, we find that banks managed by CEOs who started their careers during recessions (i.e., recession CEOs) take less risk than their non-recession counterparts. We also show that recession CEOs are more likely to implement conservative bank policies, have a traditional bank business model, and are negatively related to bank opaqueness. Furthermore, banks with recession CEOs produce superior performance during the recent financial crisis, while they do not outperform those with non-recession CEOs in general or over the pre-crisis period. The negative effect of recession CEOs on bank risk-taking persists after we attempt to address endogeneity concerns and is robust to the introduction of additional robustness checks. Overall, these findings highlight the empirical relevance of the association between the initial labor market conditions when a bank CEO starts her career and bank risk-taking.