Are Regulatory Management Evaluations Informative about Bank Accounting Returns and Risk?

42 Pages Posted: 22 Aug 2010 Last revised: 3 Dec 2012

See all articles by Lewis Gaul

Lewis Gaul

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Ajay A. Palvia

Government of the United States of America - Federal Deposit Insurance Corporation (FDIC)

Date Written: November 1, 2012

Abstract

This paper considers the association between regulatory management evaluations and bank accounting returns and risk. For robustness, we estimate our tests using a matched sample with equal numbers of banks with and without weak regulatory management evaluations. We document a strong association between weak ex-ante regulatory assessments of management and poor accounting returns not explained by other financial or regulatory indicators. We do not find robust evidence that weak management evaluations are linked with risk. Our results suggest that regulatory assessments of bank management are informative and that better managed banks perform better without necessarily taking on greater risk.

Keywords: Bank Supervision, Corporate Governance, Financial Institutions

JEL Classification: G28, G30, G31

Suggested Citation

Gaul, Lewis and Palvia, Ajay A., Are Regulatory Management Evaluations Informative about Bank Accounting Returns and Risk? (November 1, 2012). Journal of Economics and Business, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1662529 or http://dx.doi.org/10.2139/ssrn.1662529

Lewis Gaul

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Ajay A. Palvia (Contact Author)

Government of the United States of America - Federal Deposit Insurance Corporation (FDIC) ( email )

550 17th Street NW
Washington, DC 20429
United States

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