The Role of Bank CEOs in Zombie Lending During a Crisis: Evidence from India

Abstract A well-documented pattern of bank lending during crises is allocating credit to insolvent firms at the expense of productive firms, leading to inefficient resource allocation at the macro level. I investigate the role of bank CEOs in influencing such distortions during crises, using the strictly enforced age-based retirement policy of Indian government-controlled banks. I find that banks experiencing a CEO turnover in a crisis are less likely to bail out insolvent borrowers, as the new CEO has a lower incentive to do so. Consequently, the efficiency of credit allocation improves, and the zombification of the economy decreases.