American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
The Carrot and the Stick: Bank Bailouts and the Disciplining Role of Board Appointments
American Economic Journal: Economic Policy
vol. 16,
no. 4, November 2024
(pp. 415–62)
Abstract
We empirically examine the Capital Purchase Program (CPP) used by the US government to bail out distressed banks and its implications for regulatory policy. We find strong evidence that a feature of the CPP—the government's ability to appoint independent directors on the board of an assisted bank that missed six dividend payments to the Treasury—had a significant effect on bank behavior. Banks were averse to these appointments—the empirical distribution of missed payments exhibits a sharp discontinuity at five. Director appointments by the Treasury were associated with improved bank performance and lower CEO pay.Citation
Mücke, Christian, Loriana Pelizzon, Vincenzo Pezone, and Anjan Thakor. 2024. "The Carrot and the Stick: Bank Bailouts and the Disciplining Role of Board Appointments." American Economic Journal: Economic Policy, 16 (4): 415–62. DOI: 10.1257/pol.20230313Additional Materials
JEL Classification
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- G35 Payout Policy
- G38 Corporate Finance and Governance: Government Policy and Regulation
- H81 Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
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