Agency Theory and Bank Governance: A Study of the Effectiveness of CEO's Remuneration for Risk Taking

Gerard Mondello and Nissaf Ben Ayed Smaoui

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Abstract: This article studies the links between governance and risk-taking in banks. For the agency theory, when information are asymmetric, the disciplinary mechanisms of governance have a moderating effect on the remuneration policy and, consequently, the managers' choice concerning the balance between assets' revenue and risk. The following model shows that: i) The presence of effective disciplinary mechanisms does not reduce the latitude of managers to award themselves a high level of wages; ii) This binds the control of risk-taking through remuneration structures. Remuneration is not a determining factor in explaining risk-taking. iii) Contrary to the agency theory's teaching, excessive risk-taking is not induced by asymmetric information.

Keywords: G2; G24; G3; G34 Agency theory; Bank governance; information asymmetry; CEO's remuneration; bank risk (search for similar items in EconPapers)
Date: 2021-12-26
New Economics Papers: this item is included in nep-cfn, nep-his and nep-isf
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Working Paper: Agency Theory and Bank Governance: A Study of the Effectiveness of CEO's Remuneration for Risk Taking (2020)
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