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Executive Compensation and Business Policy Choices at U.S. Commercial Banks

Published online by Cambridge University Press:  08 January 2013

Robert DeYoung ,
Emma Y. Peng  and
Meng Yan
Robert DeYoung
Affiliation:
[email protected], KU School of Business, University of Kansas, 1300 Sunnyside Ave, Lawrence, KS 66045;
Emma Y. Peng
Affiliation:
[email protected],
Meng Yan
Affiliation:
[email protected], Graduate School of Business, Fordham University, 1790 Broadway FL 13, New York, NY 10019.
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Abstract

We show that contractual risk-taking incentives for chief executive officers (CEOs) increased at large U.S. commercial banks around 2000, when industry deregulation expanded these banks’ growth opportunities. Our econometric models indicate that CEOs responded positively to these incentives, especially at the larger banks best able to take advantage of these opportunities. Our results also suggest that bank boards responded to higher-than-average levels of risk by moderating CEO risk-taking incentives; however, this feedback effect is absent at the very largest banks with strong growth opportunities and a history of highly aggressive risk-taking incentives.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 1 , February 2013 , pp. 165 - 196
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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