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

74 Pages Posted: 7 Nov 2016 Last revised: 22 Jun 2019

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: March 24, 2017

Abstract

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

Suggested Citation

Gao, Janet and Kleiner, Kristoph and Pacelli, Joseph, Credit and Punishment: Are Corporate Bankers Disciplined for Risk Taking? (March 24, 2017). Kelley School of Business Research Paper No. 16-81. 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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