Research Handbook on International Banking and Governance
Show Less

Research Handbook on International Banking and Governance

Edited by James R. Barth, Chen Lin and Clas Wihlborg

The contributors – top international scholars from finance, law and business – explore the role of governance, both internal and external, in explaining risk-taking and other aspects of the behavior of financial institutions. Additionally, they discuss market and policy features affecting objectives and quality of governance. The chapters provide in-depth analysis of factors such as: ownership, efficiency and stability; market discipline; compensation and performance; social responsibility; and governance in non-bank financial institutions. Only through this kind of rigorous examination can one hope to implement the financial reforms necessary and sufficient to reduce the likelihood and severity of future crises.
Buy Book in Print
Show Summary Details
You do not have access to this content

Chapter 26: Management Turnover, Regulatory Oversight and Performance: Evidence from Community Banks

Ajay A. Palvia


Ajay A. Palvia* 26.1 INTRODUCTION Bank shareholders, like shareholders of unregulated firms, delegate the monitoring of top management to company boards of directors. Unlike other firms, however, banks are also subject to regulatory monitoring, which has the potential to improve oversight by providing bank boards with additional information or by prodding bank boards to consider existing information more dutifully. To the extent regulatory oversight helps, or forces, bank boards to discipline ineffective management, it has the potential to improve bank governance.1 Regulatory monitoring of banks largely consists of rating banks, communicating the rationale behind the ratings to banks, and initiating either formal or informal actions when important deficiencies in banks are found.2 If regulatory monitoring uncovers information signifying ineffective or inept management, it may lead to the replacement of senior management. This chapter considers the role of regulatory monitoring in promoting better bank governance. In particular, it examines whether regulatory evaluations influence top management turnover and whether such regulatory-induced turnover is associated with better subsequent performance. Numerous past instances of top management replacement suggest that regulatory monitoring can play a disciplinary role in banks. For example, an Office of the Comptroller of the Currency (OCC) bank examination found poor internal controls at a community bank in 2001; soon thereafter, the bank’s chief executive officer (CEO) was fired by its board (OCC, 2002). In more recent cases, Coast Bank of Florida and Westsound Bank, both facing pressure from investigations by bank regulators for loan fraud, announced the resignations of their CEOs...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information

or login to access all content.