Deregulation and the Relationship Between Bank CEO Compensation and Risk Taking
- 1 November 2003
- preprint
- Published by Elsevier BV in SSRN Electronic Journal
Abstract
The deregulation of the banking industry during the 1990s provides a natural (public policy) experiment for investigating how firms adjust their executive compensation contracts as the environment in which they operate becomes relatively more competitive. Using the Riegle-Neal Act of 1994 as a focal point, we investigate how banks changed the equity-based component of bank CEO compensation contracts. We also examine the relationships between equity-based compensation and risk, capital structure, and investment opportunity set. Consistent with theoretical predictions, we find that after deregulation, the equity-based component of bank CEO compensation increases significantly on average for the industry. Additionally, we find that more risky banks have significantly higher levels of equity-based compensation, as do banks with more investment opportunities. But, more levered banks do not have higher levels of equity-based CEO compensation. Finally, we observe that most of these relationships become more powerful in our post-deregulation period.This publication has 34 references indexed in Scilit:
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