Firm Failure and Managerial Labor Markets: Evidence from Texas Banking

Abstract

We study the managerial labor market's ability to discriminate between good and bad managerial performance. Using a sample of failed and non-failed Texas banks (matched by geographic location and size), we find that the context of job loss affects the manager's ability to regain comparable employment. Managers associated with banks that failed for reasons arguably beyond the managers' control were twice as likely to regain comparable banking posts as were managers at other failed banks. We also detect a relation between the probability of post-failure reemployment and a manager's rank within the firm (apparent accountability for the failure) and to proxies for managerial self-dealing and competence.

Keywords: Managerial labor markets, Management turnover, Financial distress, Relative-performance evaluation

JEL Classification: G21, G33, G34, J44