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[Topic] Bank Governance after the Crisis?Is There a Case Against Shareholder Empowerment?

     We investigate the hypothesis that shareholder empowerment may have led to more bank failures during the recent financial crisis. We first argue that bank executives who are more insulated from shareholdersrisk preferences are likely to behave more conservatively than those who are less insulated. This argument implies that banks with more insulated managers would take fewer risks and, consequently, would suffer lower losses during a crisis. To test this prediction, we propose a management insulation index based on bankscharter and by-law provisions and on the provisions of the applicable state corporate law that make it difficult for shareholders to oust a firms management. Our index is both conceptually and practically different from the existing alternatives. In a sample of US commercial banks, we show that management insulation is a good predictor of bank bailouts (which we use as a proxy for poor performance)?banks in which managers are fully insulated from shareholders are roughly 20-30 percentage points less likely to be bailed out. We also find that banks in which the management insulation index was reduced between 2003 and 2007 are more likely to be bailed out. Our results cannot be replicated with alternative measures of shareholder influence, such as ownership concentration, board independence, and board classification.

[Lecturer] Tom Kirchmaier   University Manchester & FMG

[Time]   12:00 a.m., April 17th.

[Venue]  Room 714, Ming De Main Building.

     We sincerely invite you to attend. Please send an e-mail to hanqing.seminar@gmail.com to inform us about your participation. Phone calls are well welcomed as well. Work meals will be booked for teachers.
(Contact: Li Hongmei    62511138)

[Brief Introduction of the lecturer]

     Tom Kirchmaier is a Lecturer in Business Economics and Strategy at Manchester Business School and Fellow of the Financial Markets Group, London School of Economics. He also holds a PhD and MS.c in Management from the LSE, and an MS.c equivalent in Economics from the University of Regensburg, Germany. Toms interests lie in understanding the drivers of firm performance in two particular areas: corporate governance in financial and non-financial firms, and corporate restructuring.

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