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Agency Theory and Bank Governance: A Study of the Effectiveness of CEO's Remuneration for Risk Taking

Author

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  • Gérard Mondello

    (UniCA - Université Côte d'Azur)

  • Nissaf Ben Ayed Smaoui

Abstract

This article studies the links between governance and risk-taking in banks. For the agency theory, when information are asymmetric, the disciplinary mechanisms of governance have a moderating effect on the remuneration policy and, consequently, the managers' choice concerning the balance between assets' revenue and risk. The following model shows that: i) The presence of effective disciplinary mechanisms does not reduce the latitude of managers to award themselves a high level of wages; ii) This binds the control of risk-taking through remuneration structures. Remuneration is not a determining factor in explaining risk-taking. iii) Contrary to the agency theory's teaching, excessive risk-taking is not induced by asymmetric information.

Suggested Citation

  • Gérard Mondello & Nissaf Ben Ayed Smaoui, 2021. "Agency Theory and Bank Governance: A Study of the Effectiveness of CEO's Remuneration for Risk Taking," Working Papers halshs-03502607, HAL.
    • Handle: RePEc:hal:wpaper:halshs-03502607
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03502607v1
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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G2 - Financial Economics - - Financial Institutions and Services
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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