Who Disciplines Bank Managers?

Review of Finance, Vol. 16, pp. 197-243

62 Pages Posted: 10 Jan 2010 Last revised: 18 Jan 2012

See all articles by Martin Čihák

Martin Čihák

International Monetary Fund (IMF)

Andrea Michaela Maechler

International Monetary Fund (IMF)

Klaus Schaeck

University of Bristol

Stéphanie Stolz

International Monetary Fund (IMF); European Central Bank (ECB)

Multiple version iconThere are 3 versions of this paper

Date Written: February 17, 2011

Abstract

We exploit a unique dataset of executive turnovers in community banks to test the micro-mechanisms of discipline by examining the monitoring and influencing role of different stakeholders. We find executives are more likely to be dismissed in risky institutions. Examining the roles of shareholders, debtholders, and regulators as monitors, we obtain evidence for shareholder discipline. However, there is no evidence that risk affects dismissals more if debtholders have a larger stake in the bank or when regulators are aware of distress. When we analyze risk, losses, and profitability following turnovers, we obtain no evidence that replacing executives improves performance.

Keywords: banking, market discipline, executive turnover, financial soundness, corporate governance

JEL Classification: G21, G28

Suggested Citation

Cihak, Martin and Maechler, Andrea Michaela and Schaeck, Klaus and Stolz, Stephanie, Who Disciplines Bank Managers? (February 17, 2011). Review of Finance, Vol. 16, pp. 197-243 . Available at SSRN: https://ssrn.com/abstract=1533364

Martin Cihak

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Andrea Michaela Maechler (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Klaus Schaeck

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Stephanie Stolz

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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