The Effect of Bank Bailouts on CEO Careers

Abstract

This paper examines the impact of government bailouts on bank CEOs’ careers. Exploiting the Troubled Asset Relief Program (TARP) of 2008, we find that CEOs of banks that received TARP funds temporarily remained in their positions in the years 2008-2010. After this period, they were more likely to be replaced, primarily when their banks lost the political connections in the committees overseeing government aids to the financial sector. After leaving their banks, TARP CEOs did not move onto any new executive positions. Overall, our results suggest that government bailouts weaken the disciplining role of governance mechanisms.