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

See all articles by Robert M. Bushman

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School

Robert H. Davidson

Virginia Polytechnic Institute & State University - Department of Accounting and Information Systems

Aiyesha Dey

Harvard Business School

Abbie J. Smith

University of Chicago - Booth School of Business

Date Written: August 31, 2017

Abstract

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

Bushman, Robert M. and Davidson, Robert H. and Dey, Aiyesha and Smith, Abbie J., Bank CEO Materialism: Risk Controls, Culture and Tail Risk (August 31, 2017). Forthcoming, Journal of Accounting and Economics. Available at SSRN: https://ssrn.com/abstract=2780088 or http://dx.doi.org/10.2139/ssrn.2780088

Robert M. Bushman (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-9809 (Phone)

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/bushmanr/

Robert H. Davidson

Virginia Polytechnic Institute & State University - Department of Accounting and Information Systems ( email )

Pamplin College of Business
Blacksburg, VA 24061
United States

Aiyesha Dey

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Abbie J. Smith

University of Chicago - Booth School of Business ( email )

1101 East 58th Street
Graduate School of Business
Chicago, IL 60637-1561
United States
773-702-7295 (Phone)
773-702-0458 (Fax)

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