Do banks really monitor? evidence from CEO succession decisions

We demonstrate that banks play an important monitoring role in CEO succession that is not observed for public bondholders. Bank monitoring is associated with a greater likelihood of forced turnover, increased sensitivity of forced turnover to cash flow performance, and a greater likelihood a new CEO being hired externally. The stock price reaction to CEO succession is higher when bank monitoring is prevalent. Our findings contribute to theories of relationship banking that propose a valuable monitoring role for well informed, incentivized bank lenders