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Executive compensation and business policy choices at U.S. commercial banks

Author

Listed:
  • Robert DeYoung
  • Emma Y. Peng
  • Meng Yan

Abstract

This study examines whether and how the terms of CEO compensation contracts at large commercial banks between 1994 and 2006 influenced, or were influenced by, the risky business policy decisions made by these firms. We find strong evidence that bank CEOs responded to contractual risk-taking incentives by taking more risk; bank boards altered CEO compensation to encourage executives to exploit new growth opportunities; and bank boards set CEO incentives in a manner designed to moderate excessive risk-taking. These relationships are strongest during the second half of our sample, after deregulation and technological change had expanded banks' capacities for risk-taking.

Suggested Citation

  • Robert DeYoung & Emma Y. Peng & Meng Yan, 2010. "Executive compensation and business policy choices at U.S. commercial banks," Research Working Paper RWP 10-02, Federal Reserve Bank of Kansas City.
  • Handle: RePEc:fip:fedkrw:rwp10-02
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    Cited by:

    1. Belkhir, Mohamed & Boubaker, Sabri, 2013. "CEO inside debt and hedging decisions: Lessons from the U.S. banking industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 223-246.
    2. repec:eee:riibaf:v:42:y:2017:i:c:p:1489-1503 is not listed on IDEAS
    3. repec:wsi:afexxx:v:09:y:2014:i:02:n:s2010495214400053 is not listed on IDEAS
    4. Hagendorff, Jens & Vallascas, Francesco, 2011. "CEO pay incentives and risk-taking: Evidence from bank acquisitions," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1078-1095, September.
    5. repec:eee:quaeco:v:64:y:2017:i:c:p:238-248 is not listed on IDEAS
    6. Koerniadi, Hardjo & Krishnamurti, Chandrasekhar & Tourani-Rad, Alireza, 2015. "Cross-border mergers and acquisitions and default risk," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 336-348.
    7. Kenneth R. Spong & Richard J. Sullivan, 2012. "Bank Ownership and Risk Taking: Improving Corporate Governance in Banking after the Crisis," Chapters,in: Research Handbook on International Banking and Governance, chapter 7 Edward Elgar Publishing.

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