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Management insulation and bank failures

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  • Ferreira, Daniel
  • Kershaw, David
  • Kirchmaier, Tom
  • Schuster, Edmund

Abstract

How does management insulation from shareholder pressure influence banks’ resilience to crises? To address this question, we develop a measure of management insulation based on legal provisions. Unlike the existing alternatives, our measure considers the interactions between different provisions. We use this measure to study the relationship between management insulation and bank failure during the 2007-09 financial crisis. We find that banks in which managers were more insulated from shareholders in 2003 were less likely to be both bailed out in 2008/09 and targeted by activist shareholders. By contrast, alternative measures of management insulation fail to predict both bailouts and shareholder activism.

Suggested Citation

  • Ferreira, Daniel & Kershaw, David & Kirchmaier, Tom & Schuster, Edmund, 2021. "Management insulation and bank failures," LSE Research Online Documents on Economics 110428, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:110428
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    More about this item

    Keywords

    management insulation; bank performance; corporate governance; financial crisis; Law and Financial Markets Project;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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