Unveiling the power of state activism in times of distress

Aneta Hryckiewicz, Natalia Kryg, Dimitrios P. Tsomocos and Olha Zadorozhna

Economic Analysis and Policy, 2025, vol. 86, issue C, 1346-1376

Abstract: This study examines the impact and role of government interventions in aiding troubled banks, focusing on changes in CEO positions and executive compensation. Using data from European and American banks between 2008 and 2018, we hypothesize that in a high-quality institutional environment together with powerful governments, government ownership in distressed institutions has a positive effect, manifesting in activism that leads to more frequent CEO turnover and reductions in executive pay. Furthermore, we investigate how such activism affects financial recovery. Our findings indicate that while state-implemented changes in CEO positions are associated with the recovery of distressed institutions, decreasing executive compensation often has the opposite effect. This research contributes to the ongoing discussion on the role of the state during periods of distress and the channels through which government ownership translates into tangible benefits.

Keywords: State activism; State shareholder; Distress; Bailout; Recovery; Executive compensation (search for similar items in EconPapers)
JEL-codes: G18 G28 G32 G34 G38 H13 J33 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:86:y:2025:i:c:p:1346-1376

DOI: 10.1016/j.eap.2025.04.006

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