Regulatory Constraints on Performance-Based Managerial Compensation, Bank Monitoring, and Aggregate Loan Quality
This paper evaluates the effects of binding regulatory restraints on the rate of performance-based management compensation within a banking framework in which a primary function of bank management teams is to monitor loans in order to eliminate deadweight default losses. Available management teams are endowed with heterogeneous levels of monitoring efficiencies, and obtaining services from more efficient monitoring teams requires payment of higher rates of performance-based compensation. In equilibrium, a fraction of banks choose to employ management teams that monitor. With or without binding capital requirements, imposing binding restraints on the allowed rate of performance-based compensation results either in lower bank efficiency or in a reduced fraction of monitoring banks and, hence, lower aggregate loan quality. Copyright International Atlantic Economic Society 2011
Volume (Year): 39 (2011)
Issue (Month): 4 (December)
|Contact details of provider:|| Postal: Suite 650, International Tower, 229 Peachtree Street, N.E., Atlanta, GA 30303|
Phone: (404) 965-1555
Fax: (404) 965-1556
Web page: http://springerlink.metapress.com/link.asp?id=112055
More information through EDIRC
References listed on IDEAS
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, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
- John, Kose & Saunders, Anthony & Senbet, Lemma W, 2000.
"A Theory of Bank Regulation and Management Compensation,"
Review of Financial Studies,
Society for Financial Studies, vol. 13(1), pages 95-125.
- Kose John & Anthony Saunders & Lemma W. Senbet, 1996. "A Theory of Bank Regulation and Management Compensation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 96-30, New York University, Leonard N. Stern School of Business-.
- Kose John & Anthony Saunders & Lemma W. Senbet, 1998. "A Theory of Bank Regulation and Management Compensation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-043, New York University, Leonard N. Stern School of Business-.
- Jonathan R. Macey & Maureen O'Hara, 2003. "The corporate governance of banks," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 91-107.
- Kopecky, Kenneth J. & VanHoose, David, 2006. "Capital regulation, heterogeneous monitoring costs, and aggregate loan quality," Journal of Banking & Finance, Elsevier, vol. 30(8), pages 2235-2255, August.
- Elyasiani, Elyas & Kopecky, Kenneth J & VanHoose, David, 1995. "Costs of Adjustment, Portfolio Separation, and the Dynamic Behavior of Bank Loans and Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 955-74, November.
When requesting a correction, please mention this item's handle: RePEc:kap:atlecj:v:39:y:2011:i:4:p:315-328. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.