Executive Compensation and Business Policy Choices at U.S. Commercial Banks

Robert E. DeYoung · Emma Yan Peng

314 citations0/0 files storedJournal of Financial and Quantitative Analysis

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Corporate Finance and Governance Banking stability, regulation, efficiency Risk Management in Financial Firms

Abstract

Abstract We show that contractual risk-taking incentives for chief executive officers (CEOs) increased at large U.S. commercial banks around 2000, when industry deregulation expanded these banks’ growth opportunities. Our econometric models indicate that CEOs responded positively to these incentives, especially at the larger banks best able to take advantage of these opportunities. Our results also suggest that bank boards responded to higher-than-average levels of risk by moderating CEO risk-taking incentives; however, this feedback effect is absent at the very largest banks with strong growth opportunities and a history of highly aggressive risk-taking incentives.

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References

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