Basel III and CEO compensation: a new regulation attempt after the crisis
AbstractThe paper analyzes the interaction between an endogenous capital structure and investment decision, and the incentive scheme of bank executives. We show that the implementation of capital requirements, which are contingent on compensation schemes, drive a wedge between the interests of the shareholder and the CEO. This non-alignment can mitigate excessive risk taking. In particular, linking the amount of insured debt to the ratio of fixed and performance based salary encourages first-best outcomes. We derive empirical predictions and policy implications. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century with number 62056.
Date of creation: 2012
Date of revision:
Find related papers by JEL classification:
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-12 (All new papers)
- NEP-BAN-2013-01-12 (Banking)
- NEP-HRM-2013-01-12 (Human Capital & Human Resource Management)
- NEP-RMG-2013-01-12 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Douglas W. Diamond & Raghuram G. Rajan, 1999.
"A Theory of Bank Capital,"
NBER Working Papers
7431, National Bureau of Economic Research, Inc.
- Mitchell Berlin & Loretta J. Mester, 1990.
"Debt covenants and renegotiation,"
90-21, Federal Reserve Bank of Philadelphia.
- anonymous, 2008. "Federal Reserve Bank of Kansas City: 2007 annual report," TEN, Federal Reserve Bank of Kansas City, issue Spr, pages 37-81.
- Alex Edmans & Qi Liu, 2011. "Inside Debt," Review of Finance, European Finance Association, vol. 15(1), pages 75-102.
- Inderst, Roman & Mueller, Holger M, 2005.
"Informed Lending and Security Design,"
CEPR Discussion Papers
5185, C.E.P.R. Discussion Papers.
- Rüdiger Fahlenbrach & René M. Stulz, 2009.
"Bank CEO Incentives and the Credit Crisis,"
NBER Working Papers
15212, National Bureau of Economic Research, Inc.
- Fahlenbach, Rudiger & Stulz, Rene M., 2009. "Bank CEO Incentives and the Credit Crisis," Working Paper Series 2009-13, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
- Rüdiger FAHLENBRACH & René M. STULZ, . "Bank CEO Incentives and the Credit Crisis," Swiss Finance Institute Research Paper Series 09-27, Swiss Finance Institute.
- Bebchuk, Lucian A. & Weisbach, Michael S., 2009.
"The State of Corporate Governance Research,"
Working Paper Series
2009-21, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
- Lucian A. Bebchuk & Michael S. Weisbach, 2010. "The State of Corporate Governance Research," Review of Financial Studies, Society for Financial Studies, vol. 23(3), pages 939-961, March.
- Lucian A. Bebchuk & Michael S. Weisbach, 2010. "The State of Corporate Governance Research," NBER Chapters, in: Corporate Governance National Bureau of Economic Research, Inc.
- Rangarajan K. Sundaram & David L. Yermack, 2007. "Pay Me Later: Inside Debt and Its Role in Managerial Compensation," Journal of Finance, American Finance Association, vol. 62(4), pages 1551-1588, 08.
- Jon Danielsson, 2000.
"The Emperor has no Clothes: Limits to Risk Modelling,"
FMG Special Papers
sp126, Financial Markets Group.
- Danielsson, Jon, 2002. "The emperor has no clothes: Limits to risk modelling," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1273-1296, July.
- John, Teresa A & John, Kose, 1993. " Top-Management Compensation and Capital Structure," Journal of Finance, American Finance Association, vol. 48(3), pages 949-74, July.
- Patrick Bolton & Hamid Mehran & Joel Shapiro, 2010. "Executive compensation and risk taking," Staff Reports 456, Federal Reserve Bank of New York.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.