We test for a link between CEO power and risk taking in US banks. Banks are more likely to take risks if they have powerful CEOs and relatively poor balance sheets. There is little evidence that executive board size and independence have a dampening effect on the channels through which powerful CEOs influence risk-taking and some evidence that institutional investors reinforce the risk-taking preferences of powerful CEOs.
We test for a link in between risk taking by US banks and CEO power, which we proxy by a CEO's length of tenure and network size. We find that banks are more likely to take on excessive risks when CEO's have a relatively long tenure and large network. The result is robust controlling for other risk characteristics of banks, governance mechanisms, and bank ownership structure.
We test for a link between money laundering and bank risk in US banks. We find that money laundering increases bank risk according to several measures of risk, with the effect on risk only partly mitigated by large and independent executive boards and accentuated by powerful CEOs.
This paper examines the impact of credit default swaps (CDS) on firms' financing and trade credit policies. Our results indicate firms with CDS trading on their debt increase their equity issuances. Further, firms with CDS trading on their debt and high levels of long-term debt issuances decrease their debt financing. Total and idiosyncratic risks are also higher for firms with CDS trading on their debt. These firms pay their suppliers and collect from their customers quicker. Thus, the impacts of the CDS market are not limited to the borrowing firms but also affect economically connected firms.
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