The Revolving Door for Financial Regulators

Review of Finance, Forthcoming

60 Pages Posted: 9 Nov 2013 Last revised: 17 Jun 2016

Sophie Shive

University of Notre Dame - Department of Finance

Margaret Forster

University of Notre Dame

Date Written: June 17, 2016

Abstract

We investigate the motivations and effects of financial firms' hiring of former U.S. financial regulatory employees. The number of top executives with regulatory experience per firm has increased 24% over 2001-2015, and hiring is associated with positive average announcement returns and a salary premium. In the quarter after hire, market and balance sheet measures of firm risk decrease significantly and measures of risk management activity increase, especially for hires from prudential regulators, who directly monitor financial firm risk. The absence of this result for unregulated firms and for exogenous shocks to regulatory experience suggest that firms hire ex-employees of their regulators when they perceive a need to reduce risk, consistent with a schooling hypothesis. We find little direct evidence of quid-pro-quo behavior in regulatory event frequency and fines.

Keywords: revolving door, regulation

Suggested Citation

Shive, Sophie and Forster, Margaret, The Revolving Door for Financial Regulators (June 17, 2016). Review of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2348968 or http://dx.doi.org/10.2139/ssrn.2348968

Sophie Shive (Contact Author)

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Margaret Forster

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN New South Wales 46556-5646
United States

Paper statistics

Downloads
595
Rank
36,069
Abstract Views
3,485