Bankers on the Board and CEO Turnover

Abstract

Governance literature finds that the independent directors from the lending banks (CBDs) bring both financial expertise and conflict of interest between shareholders and debtholder. We examine how the presence of CBDs affects the implicit incentive of CEO turnover. Using BoardEx and DealScan data, we hypothesize and find that CBDs make the CEO turnover more sensitive to both performance and risk. Post CEO turnover analysis reveals that firm performance improves and risk decreases in the presence of CBDs.

Keywords: CEO turnover, banker directors, board of directors, commercial bankers, corporate governance, implicit incentive

JEL Classification: G3