Deregulation and Board Policies: Evidence from Performance Measures Used in Bank CEO Turnover Decisions

The financial crisis has led to renewed interest in the effects of deregulation on bank governance and incentives provided to bank CEOs. We examine the relation between bank CEO turnover and performance, and whether this relation has been affected by banking deregulation. We find that bank CEO turnover is more (less) sensitive to stock (accounting) performance in the post-deregulation period. We also find that such changes in turnover-performance sensitivity primarily exist in large banks, which are best positioned to exploit growth opportunities, and in banks that expand geographically after deregulation. Our results indicate an increased (decreased) emphasis on stock (accounting) performance in turnover decisions when competition and growth opportunities are greater in the deregulated environment. The findings provide evidence that the information used in board decisions varies with features of the competitive environment.