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Do all new brooms sweep clean? Evidence for outside bank appointments

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  • Kick, Thomas
  • Nehring, Inge
  • Schertler, Andrea

Abstract

Banks in bad financial shape are more likely to appoint executive directors from the outside than those in good shape. It is, however, not clear whether all of these appointments necessarily lead to the desired turnaround. We analyze the performance effects of new board members with external boardroom experience (outsiders) by distinguishing between good and bad managerial abilities of executives based on either ROA or risk-return effciency of their previous employers. Our results show that banks appointing bad outsiders underperform other banks while those appointing good outsiders do so to a lesser extent. The performance differentials are highly pronounced in high-risk banks and in the post-crisis period.

Suggested Citation

  • Kick, Thomas & Nehring, Inge & Schertler, Andrea, 2017. "Do all new brooms sweep clean? Evidence for outside bank appointments," Discussion Papers 27/2017, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:272017
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    Keywords

    executive directors; outside appointments; bank performance; managerial ability;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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