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Bank CEO incentives and the credit crisis

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  • Fahlenbrach, Rüdiger
  • Stulz, René M.

Abstract

We investigate whether bank performance during the recent credit crisis is related to chief executive officer (CEO) incentives before the crisis. We find some evidence that banks with CEOs whose incentives were better aligned with the interests of shareholders performed worse and no evidence that they performed better. Banks with higher option compensation and a larger fraction of compensation in cash bonuses for their CEOs did not perform worse during the crisis. Bank CEOs did not reduce their holdings of shares in anticipation of the crisis or during the crisis. Consequently, they suffered extremely large wealth losses in the wake of the crisis.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 99 (2011)
Issue (Month): 1 (January)
Pages: 11-26

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Handle: RePEc:eee:jfinec:v:99:y:2011:i:1:p:11-26

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Web page: http://www.elsevier.com/locate/inca/505576

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Keywords: Financial crisis CEO compensation CEO incentives Insider trading;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Freddie and the Crisis
    by Jonathan Finegold in Economic Thought on 2012-11-13 13:00:33
  2. The Price of Inequality: the Good, the Bad, and the Ugly
    by Jonathan Finegold in Economic Thought on 2012-12-22 16:00:07
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