Are Two Heads Better Than One? Evidence from the Thrift Crisis

34 Pages Posted: 6 Sep 2010 Last revised: 28 Sep 2012

See all articles by John W. Byrd

John W. Byrd

University of Colorado at Denver; University of Colorado at Denver

Donald R. Fraser

Texas A&M University - Department of Finance

D. Scott Lee

University of Nevada, Las Vegas - Lee Business School

Semih Tartaroglu

Wichita State University

Date Written: June 20, 2011

Abstract

We employ a natural experiment from the 1980s, predating the ubiquitous clamor for independence influenced corporate governance structures, to examine which governance mechanisms are associated with firm survival and failure. We find that thrifts were more likely to survive the thrift crisis when their CEO also chaired the firm’s board of directors. On average, chair-holding CEOs undertook less aggressive lending policies than their counterparts who did not chair their boards. Consequently, taxpayer interests were protected by thrifts that bestowed both leadership posts to one person. This is an important policy issue, because taxpayers become the residual claimants for depository institutions that fail as a result of managers adopting risky strategies to exploit underpriced deposit insurance. Our findings corroborate recent evidence that manager-dominated firms resist shareholder pressure to adopt riskier investment strategies to exploit underpriced deposit insurance.

Keywords: Unitary Leadership, CEO Duality, Financial Regulation, Financial Crises, Corporate Governance

JEL Classification: G38, G21, G28

Suggested Citation

Byrd, John W. and Fraser, Donald R. and Lee, D. Scott and Tartaroglu, Semih, Are Two Heads Better Than One? Evidence from the Thrift Crisis (June 20, 2011). Journal of Banking and Finance, 36, April 2012, 957-967., Mays Business School Research Paper No. 2011-11, Available at SSRN: https://ssrn.com/abstract=1669172

John W. Byrd

University of Colorado at Denver ( email )

Department of Finance
Denver, CO
United States
970-247-9182 (Phone)

University of Colorado at Denver

Box 173364
1250 14th Street
Denver, CO 80217

Donald R. Fraser

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States
979-845- 2020 (Phone)

D. Scott Lee (Contact Author)

University of Nevada, Las Vegas - Lee Business School ( email )

4505 S. Maryland Parkway
Box 456008
Las Vegas, NV 89154-6008
United States
702-895-2526 (Phone)
702-895-4630 (Fax)

HOME PAGE: http://faculty.unlv.edu/slee

Semih Tartaroglu

Wichita State University ( email )

Department of Finance, Real Estate & Decision
Sciences (FREDS)
Wichita, KS 67260-0077
United States
(316) 978 7124 (Phone)

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