Do banks really monitor? Evidence from CEO succession decisions

Andrew Marshall; Laura McCann; Patrick McColgan

doi:10.1016/j.jbankfin.2014.05.017

Do banks really monitor? Evidence from CEO succession decisions

Andrew Marshall, Laura McCann, Patrick McColgan

Accounting And Finance

Research output: Contribution to journal › Article › peer-review

15 Citations (Scopus)

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Abstract

We demonstrate that banks play an important monitoring role in CEO succession that is not observed for other types of lenders, particularly public bondholders. There is a stronger relation between cash flow performance and forced CEO turnover for firms issuing bank debt during the year of CEO turnover than for firms not issuing bank debt, and bank debt issuance increases the likelihood of external CEO succession. The stock price reaction to CEO succession is higher when bank monitoring is prevalent. Our results are consistent with theories of relationship banking that propose a valuable monitoring role for well informed, incentivized bank lenders.

Original language	English
Pages (from-to)	118-131
Number of pages	14
Journal	Journal of Banking and Finance
Volume	46
Early online date	29 May 2014
DOIs	https://doi.org/10.1016/j.jbankfin.2014.05.017
Publication status	Published - 30 Sep 2014

Keywords

bank debt
CEO succession
lender monitoring
external succession

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10.1016/j.jbankfin.2014.05.017

Marshall-et-al-Banks-CEO-succession-JBF-2014Accepted author manuscript, 809 KB

Andrew Marshall
- a.marshallstrath.acuk
- Accounting And Finance - Professor
Person: Academic
Patrick McColgan
- patrick.mccolganstrath.acuk
- Accounting And Finance - Reader
Person: Academic

Cite this

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title = "Do banks really monitor? Evidence from CEO succession decisions",

abstract = "We demonstrate that banks play an important monitoring role in CEO succession that is not observed for other types of lenders, particularly public bondholders. There is a stronger relation between cash flow performance and forced CEO turnover for firms issuing bank debt during the year of CEO turnover than for firms not issuing bank debt, and bank debt issuance increases the likelihood of external CEO succession. The stock price reaction to CEO succession is higher when bank monitoring is prevalent. Our results are consistent with theories of relationship banking that propose a valuable monitoring role for well informed, incentivized bank lenders.",

keywords = "bank debt, CEO succession, lender monitoring, external succession",

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AU - Marshall, Andrew

AU - McCann, Laura

AU - McColgan, Patrick

N1 - NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Banking and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking and Finance, [VOL 46, (29/05/14)] DOI: 10.1016/j.jbankfin.2014.05.017

PY - 2014/9/30

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N2 - We demonstrate that banks play an important monitoring role in CEO succession that is not observed for other types of lenders, particularly public bondholders. There is a stronger relation between cash flow performance and forced CEO turnover for firms issuing bank debt during the year of CEO turnover than for firms not issuing bank debt, and bank debt issuance increases the likelihood of external CEO succession. The stock price reaction to CEO succession is higher when bank monitoring is prevalent. Our results are consistent with theories of relationship banking that propose a valuable monitoring role for well informed, incentivized bank lenders.

AB - We demonstrate that banks play an important monitoring role in CEO succession that is not observed for other types of lenders, particularly public bondholders. There is a stronger relation between cash flow performance and forced CEO turnover for firms issuing bank debt during the year of CEO turnover than for firms not issuing bank debt, and bank debt issuance increases the likelihood of external CEO succession. The stock price reaction to CEO succession is higher when bank monitoring is prevalent. Our results are consistent with theories of relationship banking that propose a valuable monitoring role for well informed, incentivized bank lenders.

KW - bank debt

KW - CEO succession

KW - lender monitoring

KW - external succession

U2 - 10.1016/j.jbankfin.2014.05.017

DO - 10.1016/j.jbankfin.2014.05.017

M3 - Article

VL - 46

SP - 118

EP - 131

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

SN - 0378-4266

ER -

Do banks really monitor? Evidence from CEO succession decisions

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Keywords

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Andrew Marshall

Patrick McColgan

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