Credit and Punishment: Are Corporate Bankers Disciplined for Risk Taking?

Review of Financial Studies, Forthcoming

77 Pages Posted: 7 Nov 2016 Last revised: 20 Feb 2020

See all articles by Janet Gao

Janet Gao

Indiana University - Kelley School of Business

Kristoph Kleiner

Indiana University - Kelley School of Business - Department of Finance

Joseph Pacelli

Indiana University - Kelley School of Business - Department of Accounting

Date Written: February 18, 2020

Abstract

We examine whether bankers face disciplining consequences for structuring poorly performing corporate loans. We construct a novel dataset containing the employment histories and loan portfolios of a large sample of corporate bankers and find that corporate credit events (i.e., downgrades, defaults, and bankruptcies) increase banker turnover, and this effect is more pronounced when losses are severe and when bankers issue loans with loose terms. Credit events also prompt stricter risk management practices in the future, as reflected by more restrictive covenant packages. Overall, 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

Suggested Citation

Gao, Janet and Kleiner, Kristoph and Pacelli, Joseph, Credit and Punishment: Are Corporate Bankers Disciplined for Risk Taking? (February 18, 2020). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2865194 or http://dx.doi.org/10.2139/ssrn.2865194

Janet Gao

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Kristoph Kleiner

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Joseph Pacelli (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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