The Impact of Capital Requirements and Managerial Compensation on Bank Charter Value
This paper examines the joint impact of capital requirements and managerial incentive compensation on bank charter value and bank risk. Most of the previous literature in the area of banking and agency theory has focused on asymmetric information between either banks and regulators, (and therefore on the role of bank capital), or between bank shareholders and bank managers, (and therefore on the role of managerial ownership). In this paper we unify these issues and present empirical results from the regression of capital requirements jointly with measures of incentive compensation on Tobin's Q, our proxy for bank charter value, and on the standard deviation of total return, our proxy for bank risk. In a sample of 102 bank holding companies we find that capital levels are consistently a significant positive factor in determining bank charter value and a significant negative factor in determining risk. On the other hand, we find our six measures of incentive compensation to be generally insignificant relative to charter value but do provide some evidence consistent with a theory relating types of incentive compensation with risk.
Volume (Year): 23 (2004)
Issue (Month): 3 (November)
|Contact details of provider:|| Web page: http://springer.com|
|Order Information:||Web: http://www.springer.com/finance/journal/11156/PS2|
When requesting a correction, please mention this item's handle: RePEc:kap:rqfnac:v:23:y:2004:i:3:p:191-206. 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 (Rebekah McClure)
If references are entirely missing, you can add them using this form.