Incentive Pay and Bank Risk-Taking: Evidence from Austrian, German, and Swiss Banks

Matthias Efing, Harald Hau, Patrick Kampkötter and Johannes Steinbrecher

No 14-55, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We use payroll data in the Austrian, German, and Swiss banking sector to identify incentive pay in the critical banking segments of treasury/capital market management and investment banking for 67 banks. We document an economically signifi?cant correlation of incentive pay with both the level and volatility of bank trading income?--particularly for the pre-crisis period 2003?-7, in which incentive pay was strongest. This result is robust if we instrument the bonus share in the capital markets divisions with the strength of incentive pay in unrelated bank divisions like retail banking. Moreover, pre-crisis incentive pay appears too strong for an optimal trade-off between trading income and risk, which maximizes the net present value of trading income. Further analyses indicate that the bonus moderation during the crisis has removed excessive pre-crisis incentive pay.

Keywords: Trading Income; Bank Risk; Incentive Pay; Bonus Payments (search for similar items in EconPapers)
JEL-codes: D22 G20 G21 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2014-08, Revised 2014-12
New Economics Papers: this item is included in nep-ban and nep-hrm
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://ssrn.com/abstract=2492115 (application/pdf)

Related works:
Journal Article: Incentive pay and bank risk-taking: Evidence from Austrian, German, and Swiss banks (2015)
Chapter: Incentive Pay and Bank Risk-taking: Evidence from Austrian, German, and Swiss Banks (2014)
Working Paper: Incentive Pay and Bank Risk-Taking: Evidence from Austrian, German, and Swiss Banks (2014)
Working Paper: Incentive Pay and Bank Risk-Taking:Evidence from Austrian, German, and Swiss Banks (2014)
Working Paper: Incentive Pay and Bank Risk-Taking: Evidence from Austrian, German, and Swiss Banks (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1455

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().