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Firm Performance and CEO Reputation Costs: New Evidence from Venezuelan Banking CrisisMaximiliano GonzalezUniversidad de los Andes - School of Management Urbi GarayInstituto de Estudios Superiores de Administración (IESA) Carlos A. MolinaIESA May 1, 2007 Emerging Market Finance and Trade, Vol. 43, pp. 16-33, 2007 Abstract: When searching for outside directors, the performance of the candidate as a manager of other firms is important. Using a sample of Venezuelan banks during a systemic crisis, we find that the outside directorships of chief executive officers (CEOs) are negatively affected by banks’ performances, measured by their default risk. Our results suggest that a CEOs’ personal monitoring talents are what is being purchased when CEOs are appointed as outside directors. In addition, the negative effect of firms’ performances on their CEOs’ reputations is significantly stronger in an emerging market, suggesting that CEO reputation helps to control for managerial agency costs when other governance mechanisms are absent. The size of the bank has a positive effect on CEO reputation, which partially offsets the negative reputation effect of the bank risk.
Number of Pages in PDF File: 19 Keywords: Banking Crisis, CEO Reputation, Performance JEL Classification: G3, G39 Accepted Paper SeriesDate posted: February 8, 2011Suggested CitationContact Information
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