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The (Not so) Quiet Life of Commercial Bankers

A literature begun by Rotemberg (1984) and revived in a series of articles in recent years contends that common ownership offers residual claimants a means of solving the oligopoly defection problem and ensuring adherence to collusive agreements. The two industries to have been directly targeted by this literature are airlines and commercial banking. Focusing on the case of banking, this paper challenges a key pillar of that literature: the “quiet life” hypothesis, which claims that common ownership leads to the selection of executives who are less likely to exert high effort to maximize profits. An empirical tests is conducted to evaluate stock market responses to executive hiring announcements in order to discern whether executives hired in the six largest commercial banks are viewed by markets as significantly less motivated than their predecessors.