Bank CEO careers after bailouts: The effects of management turnover on bank risk |
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| Institution: | 1. ESCP Business School, 79 Avenue de la Republique, 75011 Paris, France;2. Paris School of Business, 59 Rue Nationale, 75013 Paris, France;1. Department of Economics University of Birmingham, United Kingdom;2. Department of Economics Carleton University, United Kingdom;1. Research Centre, Deutsche Bundesbank, Germany;2. University of Vienna and Vienna Graduate School of Finance (VGSF), Austria |
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| 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's risk as well as the 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 we provide evidence that bank bailouts have important implications for banks’ risk-taking and systemic risk, insofar as bailouts affect bank CEO turnover. |
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