Effects of CEO Turnover in Banks: Evidence Using Exogenous Turnovers in Indian Banks

68 Pages Posted: 11 Feb 2016 Last revised: 21 Aug 2017

See all articles by Krishnamurthy Subramanian

Krishnamurthy Subramanian

Indian School of Business (ISB), Hyderabad

Prasanna L. Tantri

Indian School of Business

Arkodipta Sarkar

Indian School of Business (ISB), Hyderabad

Date Written: February 7, 2017

Abstract

We examine the effects of CEO turnover in banks. Incoming bank CEOs face problems from information asymmetry because banks' operations are opaque and bank risk can change dramatically in a short time. Incoming bank CEOs may therefore change bank policies to manage their personal risks. Since CEO turnover is usually endogenous, we utilize a setting where CEO turnover is based solely on retirement age and is thus exogenous to bank performance. Consistent with our thesis, incoming CEOs increase provisioning for future delinquencies and shrink lending. Bank stock prices decline following these changes. Politically motivated lending or ever-greening cannot explain our results.

Keywords: Banks, CEO, CEO turnover, Earnings Management, Financial Crisis, Lending, Loans, Retirement, Superannuation, Tenure.

JEL Classification: G20, G21, G30, M41

Suggested Citation

Subramanian, Krishnamurthy and Tantri, Prasanna L. and Sarkar, Arkodipta, Effects of CEO Turnover in Banks: Evidence Using Exogenous Turnovers in Indian Banks (February 7, 2017). Indian School of Business WP 2730495, Available at SSRN: https://ssrn.com/abstract=2730495 or http://dx.doi.org/10.2139/ssrn.2730495

Krishnamurthy Subramanian (Contact Author)

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Prasanna L. Tantri

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

Arkodipta Sarkar

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

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