Bank Efficiency and Executive Compensation

Timothy King and Jonathan Williams
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Timothy King: Leeds University

No 13009, Working Papers from Bangor Business School, Prifysgol Bangor University (Cymru / Wales)

Abstract: We investigate whether handsomely rewarding bank executives’ realizes superior efficiency by determining if executive remuneration contracts produce incentives that offset potential agency problems and lead to improvements in bank efficiency. We calculate executive Delta and Vega to proxy executives’ risk-taking following changes in their compensation contracts and estimate their relationship with alternative profit efficiency. Our study uses novel instruments to account for the potentially endogenous relationship between efficiency and Delta and Vega whilst controlling for the structure of executive compensation, board structure, and bank-level characteristics. Our main results demonstrate that shareholders use executive Vega to incentivise executives into taking risks that improve bank efficiency, and also that executive perquisites can be used to attract and retain executives which ex post deliver efficiency gains.

Keywords: Banks; corporate governance; executive remuneration; efficiency; stochastic frontier. (search for similar items in EconPapers)
JEL-codes: C2 G21 G3 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2013-09
New Economics Papers: this item is included in nep-ban, nep-cta, nep-eff and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bng:wpaper:13009

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