Interesting OCC Study

OCC Working Paper 2008-1

by Ajay A. Palvia
Risk Analysis Division
Office of Comptroller of Currency
March 2008

Abstract

This paper examines the role of the bank examination process in disciplining bank management. Examining data from more than 3,800 U.S. banks, I find that, after factoring in financial condition and various market and organizational factors, poor supervisory ratings and recent ratings downgrades lead to increased executive turnover. In addition, the results suggest that ratings-driven executive turnover is positively related to future performance, after controlling for current financial condition. The results are consistent with the explanation that the bank supervision process, by imposing greater manager discipline, improves the profitability of banking firms and thereby raises shareholder value.


See also Yaniv Grinstein & Ajay Palvia, Executive Loans, Corporate Governance, and Firm Performance -- Evidence from Banks (SSRN-id921484 October 2006).