What drives risk-taking incentives embedded in bank executive compensation? Some international evidence

Ramón Abascal and Francisco González

Journal of Corporate Finance, 2023, vol. 79, issue C

Abstract: This paper analyzes the country determinants of risk-taking incentives embedded in bank executive compensation using hand-collected international panel data on 135 publicly-traded banks in 26 countries. We exploit time-series changes in investor protection within a country and confirm that stronger protection leads to a higher vega. Moreover, the positive effect on vega is higher in countries where stronger bank competition and more extensive safety nets increase bank shareholders' risk-taking incentives. Our analysis controls for changes in bank regulation, systemic banking crises, and government bailouts. The results are robust to alternative specification models, alternative proxies for country determinants, and remain when we apply a more traditional cross-sectional analysis.

Keywords: Executive compensation; Vega; Investor protection; Competition; Safety net (search for similar items in EconPapers)
JEL-codes: G18 G21 G28 G34 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:79:y:2023:i:c:s0929119923000068

DOI: 10.1016/j.jcorpfin.2023.102357

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