Management Turnover, Regulatory Oversight, and Performance: Evidence From Community Banks (WP 2008-1)

Abstract

This paper exploits a unique panel of U.S. community banks to re-examine the role of regulatory oversight in disciplining bank management and to consider the effect of such regulatory-linked disciplinary actions on subsequent bank performance. The results indicate that both weak bank performance and poor regulatory evaluations are associated with increased executive turnover. Furthermore, the relationship between poor regulatory evaluations and turnover persists after controlling for performance. Finally, executive turnover linked to poor regulatory evaluations is found to be positively related to future performance. Overall, the findings are consistent with the explanation that regulatory oversight can lead to improved bank governance.

Author

Ajay A. Palvia