Credit and Punishment : Are Corporate Bankers Disciplined for Risk Taking?

We examine whether bankers face disciplining consequences for structuring poorly performing corporate loans. We construct a novel dataset containing the employment histories and loan portfolios of a large sample of corporate bankers and find that corporate credit events (i.e., downgrades, defaults, and bankruptcies) increase banker turnover, and this effect is more pronounced when losses are severe and when bankers issue loans with loose terms. Credit events also prompt stricter risk management practices in the future, as reflected by more restrictive covenant packages. Overall, our findings are consistent with banks disciplining employees to manage risk exposure