Curbing expense preference behaviour in commercial banking: econometric evidence

Franklin Mixon and Kamal Upadhyaya

Applied Financial Economics, 2001, vol. 11, issue 6, 613-617

Abstract: This study employs a large, micro-data set to examine the use of incentives and bonuses in the contracts of CEOs of banking firms in the USA in an effort by the owners of these banking concerns to curb potential expense preference behaviour by the CEO. Fixed-effects regression results confirm the prevalence of bonuses and stock options relative to salary for bank CEOs, and the model presented here works to support the principal-agent model in the economics and finance literature. Meta-analysis also establishes a link between a banking concern's efforts to curb expense preference behaviour and the percentage growth rate of the bank's net income.

Date: 2001
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DOI: 10.1080/096031001753266902

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