Executive Compensation and Systemic Risk: The Role of Non-Interest Income and Wholesale Funding
This paper analyzes whether the excessive overreliance on non-interest income and wholesale funding, which occurred in the banking industry during the last two decades and led to increases in systemic risk, could arise from the desire of bank managers to increase their variable compensation. Using a sample of U.S. bank holding companies during 1995 to 2010, our results show that non-interest income is positively associated to a larger proportion of variable compensation. Also, while exercised options are more sensitive to income trading activities, bonuses tend to be related to the revenues originated from investment banking and venture capital activities. Similarly, a greater reliance on short-term wholesale funding positively associates with higher levels of variable compensation and bonuses. After the financial crisis, variable compensation and bonuses increased with non-interest income, but decreased with the use of short-term wholesale funding.
|Date of creation:||03 Oct 2012|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.unav.edu/web/facultad-de-ciencias-economicas-y-empresariales|
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- Livne, Gilad & Markarian, Garen & Milne, Alistair, 2011. "Bankers' compensation and fair value accounting," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1096-1115, September.
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- A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller & Doug Miller, 2009.
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98, University of California, Davis, Department of Economics.
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- A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(2), pages 238-249, April.
- A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2006. "Robust Inference with Multi-way Clustering," NBER Technical Working Papers 0327, National Bureau of Economic Research, Inc.
- Jonah B. Gelbach & Doug Miller, 2009. "Robust Inference with Multi-way Clustering," Working Papers 99, University of California, Davis, Department of Economics.
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