Bank CEO careers after bailouts: The effects of management turnover on bank risk

45 Pages Posted: 18 May 2018 Last revised: 31 May 2022

Date Written: April 26, 2019

Abstract

We study whether bank bailouts affect CEO turnover and its subsequent impact on bank risk. Exploiting the Troubled Asset Relief Program (TARP) of 2008, we find that TARP funds temporarily decreased the likelihood of bank CEO turnover during the crisis (2008-2010) but significantly increased CEO changes afterwards. Our results show that replacing TARP CEOs reduced individual bank risk as well as bank’s contributions to the systemic risk. Finally, we find that TARP CEO turnover was mainly driven by a decrease in the bank’s political capital. Overall, our evidence suggests that bank CEO turnover, following bailout, could mitigate moral hazard problems resulting in positive consequences for the stability of the financial sector.

Keywords: CEO Career, CEO Turnover, TARP, Risk, Bail-Out

JEL Classification: G34, G2, G28

Suggested Citation

Bunkanwanicha, Pramuan and Di Giuli, Alberta and Salvadè, Federica, Bank CEO careers after bailouts: The effects of management turnover on bank risk (April 26, 2019). Available at SSRN: https://ssrn.com/abstract=3173545 or http://dx.doi.org/10.2139/ssrn.3173545

Pramuan Bunkanwanicha

ESCP Business School ( email )

79 Avenue de la Republique
Paris, 75011
France

Alberta Di Giuli (Contact Author)

ESCP ( email )

Paris Campus
79, Avenue de la Republique
Paris, 75011
France

Federica Salvadè

PSB Paris School of Business ( email )

59 rue Nationale
Paris, 75013
France

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