Credit and Punishment: Are Corporate Bankers Disciplined for Risk-Taking?

Janet Gao, Kristoph Kleiner, Joseph Pacelli and Itay Goldstein

The Review of Financial Studies, 2020, vol. 33, issue 12, 5706-5749

Abstract: We examine whether bankers face disciplining consequences for structuring poorly performing corporate loans. We construct a novel data set containing the employment histories and loan portfolios of a large sample of corporate bankers and find that corporate credit events (i.e., downgrades, defaults, bankruptcies) increase banker turnover. The effect is pronounced when bankers issue loans with loose terms or experience severe losses. Credit events prompt bankers to adopt stricter future risk management practices, such as offering restrictive covenant packages. Overall, our findings are consistent with banks disciplining employees as a means to manage their own risk exposure.

JEL-codes: G20 G21 G30 J24 J63 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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