CEO compensation and bank loan contracts

Chen Liu and Yan Wendy Wu

The Quarterly Review of Economics and Finance, 2022, vol. 86, issue C, 420-436

Abstract: This paper studies the relationship between bank CEO inside debt holdings and banks’ syndicated loan decisions. Using a two-stage selection model, we find that banks with higher CEO inside debt holdings extend syndicated loans to safer borrowers and have a smaller number of lenders in the syndication; these loans have a lower spread, less restrictive covenant, and longer maturity. These results suggest higher bank screening efforts and lower risk-taking incentives associated with bank CEO inside debt. The findings are robust to potential endogeneity bias and simultaneity of various loan terms.

Keywords: Inside Debt; Loan Contracting; Bank Executive; CEO Compensation; Risk-taking; Syndicated Loans; Spread; Maturity; Restrictive covenant (search for similar items in EconPapers)
JEL-codes: G21 G28 G38 J48 M52 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:86:y:2022:i:c:p:420-436

DOI: 10.1016/j.qref.2022.09.001

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