Inside Debt and Bank Performance During the Financial Crisis
Speaker
Abstract
| This paper examines how holdings of defined benefit pensions and deferred compensation (inside debt) influence bank performance during the recent financial crisis. Using a proprietary sample of executives from 319 small and large U.S. banks, I find that banks with larger end-of-2006 inside debt holdings generate higher returns, display a smaller increase in downside risk, and have a smaller probability of distress from July 2007 to March 2009. Inside debt is also positively associated with conservative balance sheet management pre-crisis, and a better-quality asset portfolio in December 2008. The findings suggest that debtholder governance moderates bank risk-taking, with important implications for the stability and governance of financial institutions. |
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| Contact information: |
| Sebastian Gryglewicz |
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