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Risk-taking Incentives, Governance,and Losses in the Financial Crisis

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Author Info

  • Marc CHESNEY

    (University of Zurich)

  • Jacob STROMBERG

    (University of Zurich (SFI Ph.D. program))

  • Alexander F. WAGNER

    (University of Zurich, Swiss Finance Institute and Harvard University)

Abstract

This paper studies the extent to which risk-taking incentives of CEOs and other governance features in a range of years prior to the recent financial crisis were related to the write-downs of U.S. financial institutions during the crisis. We document that institutions whose CEOs had particularly strong risk-taking incentives, weak ownership incentives and independent boards had the highest write-downs, both in absolute terms and relative to total assets. Furthermore, financial institutions with lower Tier-1 ratios and those with CEOs who earned less than their colleagues at comparable firms had larger write-downs.

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Bibliographic Info

Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 10-18.

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Length: 48 pages
Date of creation: May 2010
Date of revision: Jul 2010
Handle: RePEc:chf:rpseri:rp1018

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Web page: http://www.SwissFinanceInstitute.ch
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Related research

Keywords: Executive compensation; Subprime crisis; Write-downs; Corporate governance; Managerial incentives; Risk-taking; Too big to fail;

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Cited by:
  1. Wagner, Alexander F., 2011. "Board independence and competence," Journal of Financial Intermediation, Elsevier, vol. 20(1), pages 71-93, January.
  2. Hamid Mehran & Alan Morrison & Joel Shapiro, 2011. "Corporate governance and banks: what have we learned from the financial crisis?," Staff Reports 502, Federal Reserve Bank of New York.

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