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Effects of revolving doors in the financial sector : Evidence from Korea

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Effects of revolving doors in the financial sector04



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Title Effects of revolving doors in the financial sector
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Sub Title

Evidence from Korea

Material Type Videos
Author(English)

Korea Development Institute

Publisher

[Sejong] : Korea Development Institute

Date 2019-01
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < General
Social Development < Employment
Holding Korea Development Institute
License

Abstract

Retired financial regulators often find their way to executive positions in the private sector. To explain the economic impact of such a practice, also known as “revolving door,” there are two hypothesis. The first looks at the practice from a positive perspective, explaining that by hiring ex-regulators as executives, financial firms can utilize their expertise and experience to improve financial soundness. The other takes a more negative stance, speculating that financial firms can use the ex-regulators’ connections to unjustly avoid being penalized by the financial authorities. So, does this really happen? To answer this question, KDI empirically analyzed the economic impact of ex-financial regulators joining private firms. Firstly, an examination was conducted into whether ex-regulators actually contribute to the performance and improvement of the firms’ financial risk management. Based on data of ex-regulators hired by financial firms from 2011 to 2017, The analysis revealed that there were no discernable changes within the first three months of appointment, and while those from the Bank of Korea contributed somewhat, the remaining ex-regulators did little to improve the hiring firms’ financial risk management.