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Firm Performance and CEO Reputation Costs: New Evidence from the Venezuelan Banking Crisis

Posted: 2 Jul 2008  

Urbi Garay

Instituto de Estudios Superiores de Administración (IESA)

Maximiliano González

Universidad de los Andes, Colombia - School of Management; Instituto de Estudios Superiores de Administración (IESA)

Carlos Alberto Molina Manzano

IESA

Date Written: May-June 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.

Keywords: Banking crisis, CEO reputation, performance

JEL Classification: G15, G33, G34

Suggested Citation

Garay, Urbi and González, Maximiliano and Molina Manzano, Carlos Alberto, Firm Performance and CEO Reputation Costs: New Evidence from the Venezuelan Banking Crisis (May-June 2007). Emerging Markets Finance and Trade, Vol. 43, No. 3, 2007. Available at SSRN: https://ssrn.com/abstract=1154309

Urbi Garay (Contact Author)

Instituto de Estudios Superiores de Administración (IESA) ( email )

San Bernardino 1010, Caracas
Venezuela
+58 2 5554242 (Phone)
+58 2 5510812 (Fax)

Maximiliano Gonzalez

Universidad de los Andes, Colombia - School of Management ( email )

Carrera Primera # 18A-12
Bogotá
Colombia

Instituto de Estudios Superiores de Administración (IESA) ( email )

C/ Campo Santo de los Mártires, 7
San Bernardo 1010, Caracas, Córdoba 14004
Venezuela

Carlos Alberto Molina

IESA ( email )

IESA, dept of Finance
Av. IESA, San Bernardino
Caracas, DF 1010
Venezuela
+58-212-555.4551 (Phone)
+58-212-555.4446 (Fax)

HOME PAGE: http://estudiantes.iesa.edu.ve/sites/carlos.molina/

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