Executive compensation and business policy choices at U.S. commercial banks

Robert DeYoung, Emma Y. Peng and Meng Yan

No RWP 10-02, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: This study examines whether and how the terms of CEO compensation contracts at large commercial banks between 1994 and 2006 influenced, or were influenced by, the risky business policy decisions made by these firms. We find strong evidence that bank CEOs responded to contractual risk-taking incentives by taking more risk; bank boards altered CEO compensation to encourage executives to exploit new growth opportunities; and bank boards set CEO incentives in a manner designed to moderate excessive risk-taking. These relationships are strongest during the second half of our sample, after deregulation and technological change had expanded banks' capacities for risk-taking.

Date: 2010
New Economics Papers: this item is included in nep-ban, nep-bec and nep-lab
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