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Bankers on the Board and CEO Incentives

Min Jung Kang and Andy (Y. Han) Kim

European Financial Management, 2017, vol. 23, issue 2, 292-324

Abstract: The Sarbanes†Oxley Act demanded the presence of more financial experts on corporate boards to improve governance. Directors from lending banks require particular attention because of the conflicts of interest between shareholders and debtholders despite their financial expertise. In this paper, we examine whether commercial banker directors work in the best interests of shareholders in providing incentives to the CEO. We find that the CEO's compensation VEGA is lower if an affiliated banker director is on the board. Further, we find that commercial banker directors increase debt†like compensation (Sundaram and Yermack, 2007) and make it less sensitive to risk.

Date: 2017
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Handle: RePEc:bla:eufman:v:23:y:2017:i:2:p:292-324