Subjective Assessment of Managerial Performance and Decisionmaking in Banking

We examine subjective supervisory assessments of managerial performance in the banking industry. Results of empirical tests show that better assessments are (i) positively associated with decisions made by examiners to upgrade relatively objective bank performance ratings; (ii) negatively associated with decisions made by examiners to downgrade relatively objective bank performance ratings; and (iii) positively associated with decisions made by bank holding company managers to distribute resources among subsidiary banks. These results are consistent with the finding that soft information generated in the supervisory process is validated by subsequent decisionmaking both internally (by bankers) and externally (by examiners)