The Agency Problem Revisited: A Structural Analysis of Managerial Productivity and CEO Compensation in Large U.S. Commercial Banks

Shasha Liu and Robin Sickles
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Shasha Liu: Freddie Mac

Working Papers from Rice University, Department of Economics

Abstract: The paper analyzes performance, incentives, and the inefficiencies that may arise due to agency problems and market power using a newly developed panel of large U.S. commercial banks that have too-big-to-fail nature. We use a structural model to characterize managerial efficiency, which complements technical efficiency in standard stochastic frontier models. We incorporate managerial decisions, bank-specific characteristics, and market competition in deriving managerial efficiency. Data on the 50 largest commercial banks in the U.S. during 2000 and 2017 are collected from the Call Reports, and are matched with CEO compensation from S&P's Execucomp database. The paper connects empirical evidence with economic theory and contributes to the literature on efficiency and management. The ultimate goal is to better understand the linkages among managerial performance, CEO compensation, and the size and scope of bank operations. Current results point to robust empirical findings. Economies of scale have steadily declined throughout the period, and are not positively related to managerial performance and CEO compensation. The size of a bank does not seem to be justified by the evidence in that larger banks offer larger bonuses and tend to have lower managerial efficiency and diminishing scale economies.

JEL-codes: C13 C33 D22 G21 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-com and nep-eff
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The agency problem revisited: a structural analysis of managerial productivity and CEO compensation in large US commercial banks (2021)
Working Paper: The Agency Problem Revisited: A Structural Analysis of Managerial Productivity and CEO Compensation in Large U.S. Commercial Banks (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:riceco:19-010

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