 Bank stability and managerial compensationGang Bai and Elyas Elyasiani Journal of Banking & Finance, 2013, vol. 37, issue 3, 799-813 Abstract: We investigate the relationship between insolvency risk and executive compensation for BHCs over the 1992–2008 period. We employ CEO compensation sensitivity to risk (vega) and pay-share inequality between the CEO and other executives as measures of compensation and employ a system model to account for the endogeneity problem between vega and risk. Five main results are obtained. First, CEO compensation sensitivity to risk of BHCs has risen in response to deregulation to resemble those of the industrial firms. Second, higher vegas lead to greater bank instability. Third, the association between bank stability and managerial compensation is bi-directional; higher vegas induce greater risk and vice versa. Fourth, BHCs in the next to the largest-size group increase CEO vegas the most and have the strongest potential to create instability. Fifth, increased pay-share inequality has effects opposite to those of the increase in vega; greater pay-share inequality is associated with greater stability. Keywords: Executive compensation; Insolvency risk; Bank holding company; Pay inequality; Vega; Too big to fail (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:3:p:799-813 DOI: 10.1016/j.jbankfin.2012.10.026 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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