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Incentive Compensation for Bank Directors: The Impact of Deregulation

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  • David A. Becher

    (Drexel University)

  • Terry L. Campbell II

    (University of Delaware)

  • Melissa B. Frye

    (University of Central Florida)

Abstract

Although deregulation leads to changes in the duties of boards of directors, little is known about changes in their incentives. U.S. banking deregulation and associated changes during the 1990s lends itself to a natural experiment. These industry shocks forced bank directors to face expanded opportunities, increased competition, and an expanding market for corporate control. While bank directors received significantly less equity-based compensation throughout most of the 1990s, by 1999, their use of such compensation is indistinguishable from a matched sample of industrial firms. Our results suggest firms respond to deregulation by improving internal monitoring through aligning directors' and shareholders' incentives.

Suggested Citation

  • David A. Becher & Terry L. Campbell II & Melissa B. Frye, 2005. "Incentive Compensation for Bank Directors: The Impact of Deregulation," The Journal of Business, University of Chicago Press, vol. 78(5), pages 1753-1778, September.
  • Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:5:p:1753-1778
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