Credit and Punishment: Are Corporate Bankers Disciplined for Risk Taking?
74 Pages Posted: 7 Nov 2016 Last revised: 22 Jun 2019
Date Written: March 24, 2017
Are bankers punished for risk taking? To answer this question, we construct a novel dataset containing the employment histories and loan portfolios of approximately 1,400 corporate bankers employed by major U.S. banks. Negative credit events in a banker’s portfolio (i.e., downgrades, defaults, and bankruptcies) are associated with higher turnover and adverse career outcomes. Turnover risk is highest when losses are severe and when bankers issue loans with loose terms. Credit events prompt stricter risk management practices in the future, as reflected by more restrictive covenant packages. Our findings are consistent with banks disciplining employees to manage risk exposure.
Keywords: Syndicated Loans, Credit Events, Career Outcomes, Loan Officers, Bank Risk Management
JEL Classification: G20, G21, G30, J24, J63
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