Incentive Pay and Bank Risk-Taking:Evidence from Austrian, German, and Swiss Banks
Harald Hau,
Johannes Steinbrecher,
Kampkötter, Patrick and
Matthias Efing
Authors registered in the RePEc Author Service: Patrick Kampkötter
No 10217, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Abstract:
We use payroll data on 1.2 million bank employee years 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 66 banks. We document an economically significant correlation of incentive pay with both the level and volatility of bank trading income particularly for the pre-crisis period 2003-7 for 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 NPV of trading income.
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)
Date: 2014-10
New Economics Papers: this item is included in nep-ban and nep-hrm
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Citations: View citations in EconPapers (5)
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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) 
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