Management Insulation and Bank Failures

37 Pages Posted: 3 Nov 2012 Last revised: 16 Apr 2021

See all articles by Daniel Ferreira

Daniel Ferreira

London School of Economics - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

David Kershaw

London School of Economics - Law Department

Tom Kirchmaier

London School of Economics - Centre for Economic Performance; Copenhagen Business School

Edmund Schuster

London School of Economics - Law Department

Date Written: April 10, 2021

Abstract

How does management insulation from shareholder pressure influence banks’ resilience to crises? To address this question, we develop a measure of management insulation based on legal provisions. Unlike the existing alternatives, our measure considers the interactions between different provisions. We use this measure to study the relationship between management insulation and bank failure during the 2007-09 financial crisis. We find that banks in which managers were more insulated from shareholders in 2003 were less likely to be both bailed out in 2008/09 and targeted by activist shareholders. By contrast, alternative measures of management insulation fail to predict both bailouts and shareholder activism.

Keywords: Corporate Governance, Bank Bailouts

Suggested Citation

Ferreira, Daniel and Kershaw, David and Kirchmaier, Tom and Schuster, Edmund-Philipp, Management Insulation and Bank Failures (April 10, 2021). Journal of Financial Intermediation, Forthcoming, ECGI - Finance Working Paper No. 345/2013, Available at SSRN: https://ssrn.com/abstract=2170392 or http://dx.doi.org/10.2139/ssrn.2170392

Daniel Ferreira (Contact Author)

London School of Economics - Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
(+44) 20 7955 7544 (Phone)

HOME PAGE: http://personal.lse.ac.uk/FERREIRD/

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

David Kershaw

London School of Economics - Law Department

Houghton Street
London WC2A 2AE, WC2A 2AE
United Kingdom

Tom Kirchmaier

London School of Economics - Centre for Economic Performance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 207 955 6854 (Phone)

HOME PAGE: http://sites.google.com/site/tomkirchmaier/home

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Edmund-Philipp Schuster

London School of Economics - Law Department ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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