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 | |
| Publication status | Published - Sept 2014 |
Bibliographical note
The authors are grateful to Dick Davies, Paul Draper, Robert Faff, David Hillier, Ike Mathur (the editor), Katrin Migliorati, Krishna Paudyal, our anonymous reviewer, and to seminar participants at the 2nd International Conference of the Financial Engineering and Banking Society (London) and 2013 Midwest Finance Association Annual Meeting (Chicago) for helpful comments on earlier versions of this work. We also thank Martin Kemmitt for helpful research assistance on this project. All errors remain our own.Keywords
- bank debt
- CEO succession
- lender monitoring
- external succession
