Firm Performance and CEO Reputation Costs: New Evidence from the Venezuelan Banking Crisis

Urbi Garay, Maximiliano González and Carlos Molina Manzano ()
Authors registered in the RePEc Author Service: Maximiliano González ()

Emerging Markets Finance and Trade, 2007, vol. 43, issue 3, 16-33

Abstract: When searching for outside directors, the performance of the candidate as a manager of other firms is important. Using a sample of Venezuelan banks during a systemic crisis, we find that the outside directorships of chief executive officers (CEOs) are negatively affected by banks' performances, measured by their default risk. Our results suggest that a CEOs' personal monitoring talents are what is being purchased when CEOs are appointed as outside directors. In addition, the negative effect of firms' performances on their CEOs' reputations is significantly stronger in an emerging market, suggesting that CEO reputation helps to control for managerial agency costs when other governance mechanisms are absent. The size of the bank has a positive effect on CEO reputation, which partially offsets the negative reputation effect of the bank risk.

Keywords: banking crisis; CEO reputation; performance (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (3)

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