Do Banks Really Monitor? Evidence from CEO Succession Decisions

Andrew P. Marshall, Laura McCann, Patrick McColgan
2012 Social Science Research Network  
We demonstrate that banks play an important monitoring role in CEO succession that is not observed for other types of lenders, particularly public bondholders. There is a stronger relation between cash flow performance and forced CEO turnover for firms issuing bank debt during the year of CEO turnover than for firms not issuing bank debt, and bank debt issuance increases the likelihood of external CEO succession. The stock price reaction to CEO succession is higher when bank monitoring is
more » ... ent. Our results are consistent with theories of relationship banking that propose a valuable monitoring role for well informed, incentivized bank lenders. JEL Classification: G21, G32, G34
doi:10.2139/ssrn.2139959 fatcat:4w2bjw2cufhdvadueixrldwwai