The Role of Lending Banks in Forced CEO Turnovers

Sadi Ozelge and Anthony Saunders

Journal of Money, Credit and Banking, 2012, vol. 44, issue 4, 631-659

Abstract: This article investigates the governance role of banks exercised through the replacement of underperforming CEOs in borrowing firms. An average level of bank loans outstanding implies a 22% to 47% increase in the forced turnover probability of a borrowing firm’s CEO if a firm’s industry adjusted performance is one standard deviation below average. This increase is much larger, 68% to 92%, when an underperforming firm violates its loan covenants. Overall, the paper’s findings suggest that banks play a key role in the governance of underperforming firms, especially when covenants are violated.

Date: 2012
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https://doi.org/10.1111/j.1538-4616.2012.00504.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:44:y:2012:i:4:p:631-659

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