Do New Brooms Sweep Clean? Evidence that New CEOs Take a â€˜Big Bathâ€™ in the Banking Industry
Chung-Hua Shen and
Journal of Emerging Market Finance, 2019, vol. 18, issue 1, 106-144
This study investigates whether significant changes exist in providing loan losses and loan charge-offs during turnovers of chief executive officers (CEOs). Providing loan losses is referred to as a â€˜big bath in earningsâ€™, and providing loan charge-offs is referred to as a â€˜big bath in asset qualityâ€™. We classify CEO turnovers into three types, namely, forced and voluntary CEO turnovers in privately owned banks (POB), turnovers in government-owned banks (GOB) and turnovers as outcomes of mergers and acquisitions (M&As). Using findings based on the data of Taiwanese commercial banks, we demonstrate that the forcibly appointed CEOs exhibit big baths in earnings and asset quality, whereas the voluntarily appointed CEOs exhibit a big bath in earnings but not in asset quality. Compared with the CEO turnover in a POB, the appointed CEO in a GOB shows no big bath in either earnings or asset quality. Moreover, turnovers resulting from M&As do not induce big baths. JEL Classification: C23, G21, G28, M41, M48
Keywords: CEO turnover; earnings management; big bath; loan loss provision; charge-offs (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:18:y:2019:i:1:p:106-144
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