Bank CEO Materialism: Risk controls, culture, and tail risk
Robert M Bushman
Kenan-Flagler Business School, University of North Carolina-Chapel Hill
Robert H Davidson
Pamplin School of Business, Virginia Polytechnic Institute and State University
Aiyesha Dey
Carlson School of Management, University of Minnesota
Abbie J Smith
The University of Chicago Booth School of Business
Abstract
We investigate how the prevalence of materialistic bank CEOs has evolved over time, and how risk management policies, non-CEO executives’ behavior and tail risk vary with CEO materialism. We document that the proportion of banks run by materialistic CEOs increased significantly from 1994 to 2004, that the strength of risk management functions is significantly lower for banks with materialistic CEOs, and that non-CEO executives in banks with materialistic CEOs insider trade more aggressively around government intervention during the financial crisis. Finally, we find that banks with materialistic CEOs have significantly more downside tail risk relative to banks with non-materialistic CEOs.
JEL Classification Codes: G30; G34; G38