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Compensation regulation in banking: Executive director behavior and bank performance after the EU bonus cap

Stefano Colonnello, Michael Koetter and Konstantin Wagner

Journal of Accounting and Economics, 2023, vol. 76, issue 1

Abstract: The regulation that caps executives’ variable compensation, as part of the Capital Requirements Directive IV of 2013, likely affected executive turnover, compensation design, and risk-taking in EU banking. The current study identifies significantly higher average turnover rates but also finds that they are driven by CEOs at poorly performing banks. Banks indemnified their executives by off-setting the bonus cap with higher fixed compensation. Although our evidence is only suggestive, we do not find any reduction in risk-taking at the bank level, one purported aim of the regulation.

Keywords: Banks; Bonus cap; Executive compensation; Executive turnover (search for similar items in EconPapers)
JEL-codes: G21 G32 G34 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:76:y:2023:i:1:s0165410122000994

DOI: 10.1016/j.jacceco.2022.101576

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Journal of Accounting and Economics is currently edited by J. L. Zimmerman, S. P. Kothari, T. Z. Lys and R. L. Watts

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