Leverage, bank employee compensation and institutions

Ata Bertay and Burak Uras

Journal of Banking & Finance, 2020, vol. 111, issue C

Abstract: This paper investigates the empirical relationship between financial structure and employee compensation in the banking industry. Using an international panel of banks, we show that well-capitalized banks pay higher wages to their employees. Our results are robust to changes in measurement, model specification and estimation methods. In order to account for the positive association between bank capital and employee compensation, we illustrate a stylized 3-period model and show that well-capitalized banks have incentives to pay higher wages to induce monitoring. Such monitoring rents of employees at capitalized banks are expected to be higher in societies with weak institutions. Further empirical analysis shows that the weaker is institutional quality of a country the stronger is the positive relationship between bank capital and wages - supporting our theoretical conjectures.

Keywords: Bank financial structure; Wage determination; Human capital (search for similar items in EconPapers)
JEL-codes: G21 G3 J24 J31 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Working Paper: Leverage, Bank Employee Compensation and Institutions (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:111:y:2020:i:c:s0378426619302754

DOI: 10.1016/j.jbankfin.2019.105701

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