Arbeitspapier

The carrot and the stick: Bank bailouts and the disciplining role of board appointments

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We empirically examine the Capital Purchase Program (CPP) used by the US government to bail out distressed banks with equity infusions during the Great Recession. We find strong evidence that a feature of the CPP - the government's ability to appoint independent directors on the board of an assisted bank that missed six dividend payments to the Treasury - helped attenuate bailout-related moral hazard. Banks were averse to these appointments - the empirical distribution of missed payments exhibits a sharp discontinuity at five. Director appointments by the Treasury led to improved bank performance, lower CEO pay, and higher stock market valuations.

Language: Englisch

Bibliographic citation: Series: SAFE Working Paper ; No. 316

Classification: Wirtschaft
Financial Crises
Financial Institutions and Services: Government Policy and Regulation
Corporate Finance and Governance: Government Policy and Regulation
Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

Subject: Bank Bailout
TARP
Capital Purchase Program
Dividend Payments
Board Appointments
Bank Recapitalization

Event: Geistige Schöpfung

(who): Mücke, Christian
Pelizzon, Loriana
Pezone, Vincenzo
Thakor, Anjan V.

Event: Veröffentlichung

(who): Leibniz Institute for Financial Research SAFE

(where): Frankfurt a. M.

(when): 2021

DOI: doi:10.2139/ssrn.3881871

Handle: http://hdl.handle.net/10419/243281

Last update: 10.03.2025, 11:42 AM CET

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Object type

Arbeitspapier

Associated

Mücke, Christian
Pelizzon, Loriana
Pezone, Vincenzo
Thakor, Anjan V.
Leibniz Institute for Financial Research SAFE

Time of origin

2021

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