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

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

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    Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 10-02.

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    Date of creation: 2010
    Date of revision:
    Handle: RePEc:fip:fedkrw:rwp10-02
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