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Management Turnover, Regulatory Oversight, and Performance: Evidence from Banks
by Ajay A. Palvia
Abstract: This paper examines the role of the bank examination process in disciplining bank management. Examining data from more than 3,800 U.S. banks, I find that, after factoring in financial condition and various market and organizational factors, poor supervisory ratings and recent ratings downgrades lead to increased executive turnover. In addition, the results suggest that ratings-driven executive turnover is positively related to future performance, after controlling for current financial condition. The results are consistent with the explanation that the bank supervision process, by imposing greater manager discipline, improves the profitability of banking firms and thereby raises shareholder value.
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Any whole or partial reproduction of material in this paper should include the following citation: Ajay A. Palvia, "Management Turnover, Regulatory Oversight, and Performance: Evidence from Banks," Office of the Comptroller of the Currency, Economics Working Paper 2008-1, March 2008.
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