Bank CEO Materialism: Risk Controls, Culture and Tail Risk
Forthcoming, Journal of Accounting and Economics
64 Pages Posted: 17 May 2016 Last revised: 5 Dec 2017
Date Written: August 31, 2017
Focusing on a key CEO characteristic, materialism, we investigate how the prevalence of materialistic CEOs in the banking sector has evolved over time, and how risk management policies, the behavior of non-CEO executives and bank tail risk vary with CEO materialism. We document that the proportion of banks run by materialistic CEOs increased significantly from 1994 to 2004, coinciding with major bank deregulation. Using an index reflecting the strength of risk management functions (RMI), we find that RMI is significantly lower for banks with materialistic CEOs, and that RMI significantly decreases after a materialistic CEO succeeds a non-materialistic one and increases after a non-materialistic CEO replaces a materialistic CEO. Consistent with CEOs influencing corporate culture, we find that non-CEO executives in banks with materialistic CEOs more aggressively exploited inside trading opportunities around government intervention during the financial crisis. Finally, we find that banks with materialistic CEOs have significantly more downside tail risk relative to banks with non-materialistic CEOs; the difference between groups increased significantly during the recent crisis.
Keywords: Corporate Culture, Banks, Risk Management,Tail Risk
JEL Classification: G20, G21, G28, G30, M14
Suggested Citation: Suggested Citation