Is option-based compensation restrained by largest potential risk exposure? Evidence from the banking industry

Michael K. Fung

Economics Letters, 2020, vol. 191, issue C

Abstract: Excessive risk taking induced by equity-based executive compensation is more (less) of a concern to the shareholders if the largest potential risk exposure is large (small). This study empirically shows that the intensity of option-based compensation to a bank’s CEO decreases with the bank’s largest potential risk exposure and its largest potential increase in risk exposure. These findings suggest a possibility of banks self-regulating their compensation structures.

Keywords: Executive compensation; Banking; Risk (search for similar items in EconPapers)
JEL-codes: G2 G3 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:191:y:2020:i:c:s0165176520300793

DOI: 10.1016/j.econlet.2020.109084

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