Banks and managerial discipline: Does regulatory monitoring play a role?
This paper examines the impact of performance, board independence, and regulatory evaluations on CEO turnover in a recent sample of banks. Similar to earlier studies, the results suggest weak performance and greater board independence are positively related to CEO turnover. In addition, poor regulatory ratings and recent rating downgrades are found to have a positive impact on turnover, not fully explained by performance or board characteristics. Finally, the relation between CEO turnover and weak regulatory evaluations is only significant for banks with more independent boards. Overall, the results are consistent with the view that regulatory monitoring enhances managerial discipline in banks but that such discipline may be severely limited in banks with less independent boards.
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