CEO turnover in large banks: Does tail risk matter?

- Idiosyncratic tail risk is positively associated with a forced bank CEO turnover.
- This finding is stronger in less concentrated banking markets.
- This finding is stronger when stakeholders have more to lose from a bank distress
- We identify settings where systematic tail risk matters for the firing decision.

In a cross-country setting we show the probability of a forced CEO turnover in large banks is positively associated with idiosyncratic tail risk. This finding is strengthened the greater the competition in the banking industry and when stakeholders have more to lose in the case of distress. Overall, the exposure to idiosyncratic tail risk offers valuable signals to bank boards on the quality of the choices made by CEOs. In contrast, systematic tail risk becomes important for forced CEO turnovers only in the presence of a major variation in the costs this risk generates for shareholders and the organization.