Agency Theory and Bank Governance: A Study of the Effectiveness of CEO's Remuneration for Risk Taking

Gerard Mondello and Nissaf Ben Ayed
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Nissaf Ben Ayed: Université Côte d'Azur, France

No 2020-03, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: This article studies the links between governance and risk-taking in banks. For the agency theory, when information are asymmetric, the disciplinary mechanisms of governance have a moderating effect on the remuneration policy and, consequently, the managers' choice concerning the balance between assets' revenue and risk. The following model shows that: i) The presence of effective disciplinary mechanisms does not reduce the latitude of managers to award themselves a high level of wages; ii) This binds the control of risk-taking through remuneration structures. Remuneration is not a determining factor in explaining risk-taking. iii) Contrary to the agency theory's teaching, excessive risk-taking is not induced by asymmetric information.

Keywords: Agency theory; Bank governance; information asymmetry; CEO's remuneration; bank risk (search for similar items in EconPapers)
JEL-codes: G2 G24 G3 G34 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2020-02
New Economics Papers: this item is included in nep-cfn
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Working Paper: Agency Theory and Bank Governance: A Study of the Effectiveness of CEO's Remuneration for Risk Taking (2021)
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