Incentive Pay and Bank Risk-Taking: Evidence from Austrian, German, and Swiss Banks

Matthias Efing, Harald Hau, Patrick Kampkötter and Johannes Steinbrecher

No 4984, CESifo Working Paper Series from CESifo

Abstract: We use payroll data on 1.2 million bank employee years in the Austrian, German, and Swiss banking sector to identify incentive pay in the critical banking segments of treasury/capital market management and investment banking for 66 banks. We document an economically significant correlation of incentive pay with both the level and volatility of bank trading income–particularly for the pre-crisis period 2003-7 for which incentive pay was strongest. This result is robust if we instrument the bonus share in the capital markets divisions with the strength of incentive pay in unrelated bank divisions like retail banking. Moreover, pre-crisis incentive pay appears too strong for an optimal trade-off between trading income and risk which maximizes the NPV of trading income.

Keywords: trading income; bank risk; incentive pay; bonus payments (search for similar items in EconPapers)
JEL-codes: D22 G20 G21 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp4984.pdf (application/pdf)

Related works:
Journal Article: Incentive pay and bank risk-taking: Evidence from Austrian, German, and Swiss banks (2015)
Chapter: Incentive Pay and Bank Risk-taking: Evidence from Austrian, German, and Swiss Banks (2014)
Working Paper: Incentive Pay and Bank Risk-Taking: Evidence from Austrian, German, and Swiss Banks (2014)
Working Paper: Incentive Pay and Bank Risk-Taking:Evidence from Austrian, German, and Swiss Banks (2014)
Working Paper: Incentive Pay and Bank Risk-Taking: Evidence from Austrian, German, and Swiss Banks (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4984

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe (wohlrabe@ifo.de).