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

Matthias Efing, Harald Hau, Patrick Kampkötter and Johannes Steinbrecher

No 20468, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D22 G01 G20 G21 G38 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-ban, nep-cta and nep-hrm
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as Efing, Matthias & Hau, Harald & Kampkötter, Patrick & Steinbrecher, Johannes, 2015. "Incentive pay and bank risk-taking: Evidence from Austrian, German, and Swiss banks," Journal of International Economics, Elsevier, vol. 96(S1), pages S123-S140.
Published as Incentive Pay and Bank Risk-taking: Evidence from Austrian, German, and Swiss Banks , Matthias Efing, Harald Hau, Patrick Kampkötter, Johannes Steinbrecher. in NBER International Seminar on Macroeconomics 2014 , Clarida, Frankel, Giavazzi, and Rey. 2015

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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)
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