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Bank CEO Incentives and the Credit Crisis

Ruediger Fahlenbrach and René Stulz

No 09-27, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We investigate whether bank performance during the credit crisis of 2008 is related to CEO incentives and share ownership before the crisis and whether CEOs reduced their equity stakes in their banks in anticipation of the crisis. There is no evidence that banks with CEOs whose incentives were better aligned with the interests of their shareholders performed better during the crisis and some evidence that these banks actually performed worse both in terms of stock returns and in terms of accounting return on equity. Further, option compensation did not have an adverse impact on bank performance during the crisis. Bank CEOs did not reduce their holdings of shares in anticipation of the crisis or during the crisis; further, there is no evidence that they hedged their equity exposure. Consequently, they suffered extremely large wealth losses as a result of the crisis.

Keywords: Financial crisis; CEO compensation; insider trading (search for similar items in EconPapers)
JEL-codes: G01 G21 G32 (search for similar items in EconPapers)
Date: 2009-07
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http://ssrn.com/abstract=1439859 (application/pdf)

Related works:
Journal Article: Bank CEO incentives and the credit crisis (2011) Downloads
Working Paper: Bank CEO Incentives and the Credit Crisis (2009) Downloads
Working Paper: Bank CEO Incentives and the Credit Crisis (2009) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0927

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