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Unveiling the power of state activism in times of distress

Author

Listed:
  • Hryckiewicz, Aneta
  • Kryg, Natalia
  • Tsomocos, Dimitrios P.
  • Zadorozhna, Olha

Abstract

This study examines the impact and role of government interventions in aiding troubled banks, focusing on changes in CEO positions and executive compensation. Using data from European and American banks between 2008 and 2018, we hypothesize that in a high-quality institutional environment together with powerful governments, government ownership in distressed institutions has a positive effect, manifesting in activism that leads to more frequent CEO turnover and reductions in executive pay. Furthermore, we investigate how such activism affects financial recovery. Our findings indicate that while state-implemented changes in CEO positions are associated with the recovery of distressed institutions, decreasing executive compensation often has the opposite effect. This research contributes to the ongoing discussion on the role of the state during periods of distress and the channels through which government ownership translates into tangible benefits.

Suggested Citation

  • Hryckiewicz, Aneta & Kryg, Natalia & Tsomocos, Dimitrios P. & Zadorozhna, Olha, 2025. "Unveiling the power of state activism in times of distress," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 1346-1376.
    • Handle: RePEc:eee:ecanpo:v:86:y:2025:i:c:p:1346-1376
    DOI: 10.1016/j.eap.2025.04.006
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    More about this item

    Keywords

    State activism; State shareholder; Distress; Bailout; Recovery; Executive compensation;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H13 - Public Economics - - Structure and Scope of Government - - - Economics of Eminent Domain; Expropriation; Nationalization
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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