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Who Disciplines Bank Managers?

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  • Andrea M. Maechler
  • Klaus Schaeck
  • Martin Cihák
  • Stéphanie Marie Stolz

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/272.

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Length: 45
Date of creation: 01 Dec 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/272

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Keywords: Bank soundness; Bank supervision; Banks; Data analysis; Economic models; Performance indicators; Personnel; Risk management; discipline; banking; subordinated debt; bank risk; bank performance; national bank; bank holding; problems; holding company; deposit insurance; bank holding companies; bank holding company; state bank; return on equity; banking supervision; regulatory forbearance; banking industry; federal deposit insurance; bank managers; bank size; bank activities; banker; banking crises; bank capital; community bank; probability of default; bank market; bank data; return on assets; bank of international settlements; prudential bank supervision; bank bailout; savings institution; savings bank; bank market discipline; bank capital regulation; bank stock; tier 1 capital; capital regulation; bank behavior; bank fragility; internal control; bank failures; bank bailouts; banking system; bank manager; bankers; bank risk-taking; income statement; capital standard; bank mergers; bank management; bank supervisors; bank liability; capital base; bank losses; bank examination;

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References

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Citations

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Cited by:
  1. Olivier De Jonghe & Mustafa Disli & Koen Schoors, 2012. "Corporate Governance, Opaque Bank Activities, and Risk/Return Efficiency: Pre- and Post-Crisis Evidence from Turkey," Journal of Financial Services Research, Springer, vol. 41(1), pages 51-80, April.
  2. Sufian, Fadzlan & Habibullah, Muzafar Shah, 2012. "Globalizations and bank performance in China," Research in International Business and Finance, Elsevier, vol. 26(2), pages 221-239.
  3. Allen N. Berger & Thomas Kick & Klaus Schaeck, 2012. "Executive Board Composition and Bank Risk Taking," Working Papers 12004, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  4. Hamid Mehran & Alan Morrison & Joel Shapiro, 2011. "Corporate governance and banks: what have we learned from the financial crisis?," Staff Reports 502, Federal Reserve Bank of New York.
  5. Vander Vennet Rudi & De Jonghe Olivier & De Bruyckere Valerie & Baele Lieven, 2011. "Enhancing Bank Transparency: Risk Ineffciency as a Market Disciplining Mechanism," 2011 Meeting Papers 559, Society for Economic Dynamics.
  6. Ekin Ayse Ozsuca & Elif Akbostanci, 2012. "An Empirical Analysis of the Risk Taking Channel of Monetary Policy in Turkey," ERC Working Papers 1208, ERC - Economic Research Center, Middle East Technical University, revised Dec 2012.
  7. L. Baele & V. De Bruyckere & O. De Jonghe & R. Vander Vennet, 2012. "Do Stock Markets Discipline US Bank Holding Companies: Just Monitoring, or also In?uencing?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/827, Ghent University, Faculty of Economics and Business Administration.
  8. Cihak, Martin & Demirguc-Kunt, Asli & Johnston, R. Barry, 2013. "Incentive audits : a new approach to financial regulation," Policy Research Working Paper Series 6308, The World Bank.

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