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

DeYoung, Robert; Peng, Emma Y.; Meng, Yan

doi:10.1017/s0022109012000646

Cited by 253 publications

(73 citation statements)

References 50 publications

(83 reference statements)

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“…Next, bank stocks are sorted into the first and third quantiles to create a high-inside-debt portfolio and a low-inside-debt portfolio. This paper's focus on debt-based compensation adds to recent work that studies the role of nondebt incentives and risk taking in the financial sector's problems (e.g., Cheng et al (2012), Balachandran, Kogut, andHarnal (2010), DeYoung, Peng, andYan (2013), and Fahlenbrach and Stulz (2011)), in particular, risk-shifting problems (e.g., Chesney, Stromberg, and Wagner (2012)). Figure 1 illustrates the central claim of this paper that large inside debt holdings encourage managers to act conservatively, resulting in lower risk and smaller losses during the crisis.…”

Section: Figurementioning

confidence: 95%

“…In addition, DeYoung et al (2013) find that equity-based risk incentives have encouraged CEOs at U.S. commercial banks to generate more income from noninterest banking activities. To examine this, I follow DeYoung et al (2013) and measure the fraction of total noninterest income as total noninterest income scaled by net operating income (noninterest income + interest income -interest expense). To examine this, I follow DeYoung et al (2013) and measure the fraction of total noninterest income as total noninterest income scaled by net operating income (noninterest income + interest income -interest expense).…”

Section: Business Policy: Noninterest-based Bankingmentioning

confidence: 99%

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Inside Debt and Bank Risk

Bekkum¹

2016

J. Financ. Quant. Anal.

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Inside debt compensation held by top officers of U.S. banks is negatively related to risk and risk taking. The evidence reveals a robust and strongly negative relation between endof-2006 inside debt and 2007-2009 bank-specific risk exposures in terms of lost stock market value, volatility, tail risk, and the probability of financial distress. Banks with managers having large inside debt holdings are also characterized by better-quality assets, more conservative balance sheet management, and a stronger tendency toward traditional banking activities. The results suggest that debt-based compensation limits bank risk and risk taking by encouraging more conservative decision making.

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Section: Figurementioning

confidence: 95%

Section: Business Policy: Noninterest-based Bankingmentioning

confidence: 99%

Inside Debt and Bank Risk

Bekkum¹

2016

J. Financ. Quant. Anal.

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“…DeYoung et al . () show that before the onset of the financial crisis (2000–2006), U.S. banks’ CEO compensation was changed to encourage executives to exploit new growth opportunities created by deregulation and debt securitization. Subsequently CEOs took more risk.…”

Section: Remuneration Of Executivesmentioning

confidence: 99%

Corporate Governance of Banks: A Survey

Haan

Vlahu

2015

Journal of Economic Surveys

196

105

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This paper reviews the empirical literature on the corporate governance of banks. We start by highlighting the main differences between banks and nonfinancial firms and focus on three characteristics that make banks special: (i) regulation, (ii) the capital structure of banks, and (iii) the complexity and opacity of their business and structure. Next, we discuss the characteristics of corporate governance in banks and how they differ from the governance of nonfinancial firms. We then review the evidence on three governance mechanisms: (i) boards, (ii) ownership structures, and (iii) executive compensation. Our review suggests that some of the empirical regularities found in the literature on corporate governance of nonfinancial institutions, such as the positive (negative) association between board independence (size) and performance, do not hold for banks. Also, existing work provides no conclusive results regarding the relationship between different governance mechanisms and various measures for banks’ performance. We discuss potential explanations for these mixed results.

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“…A bank CEO with incentive pay might take more risks through a risky policy while improving performance. DeYoung et al (2010) found that CEO incentives do have an impact on bank risk taking. Felix Suntheim (2010) found that CEOs with strong incentives do motivate bank managers to engage in higher risk-taking policies in terms of a higher ratio of non-interest income (e.g.…”

Section: Incentive Pay and Bank Performancementioning

confidence: 99%

Does Ceo Incentive Pay Improve Bank Performance? A Quantile Regression Analysis of U.S. Commercial Banks

et al. 2014

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The U.S. subprime crisis in 2008 have raised concerns about bank performance and the incentive pay of CEOs. Whether the CEO's incentive compensation improves bank performance deserves further investigation. This research studies the improvement in bank performance by examining the CEO incentive pay of 68 U.S. commercial banks from 1993 to 2005 using quantile regression (QR) analysis. The empirical evidence indicates that the relationship between bank performance and incentive pay does vary based on bank performance levels. Our results confirm that CEO incentive compensation improves the performance of high-performing banks and, at the same time, the accrued risks need to be taken into consideration and controlled through the efficient monitoring of outside directors. For low-performing banks, we find that outside directors have a significantly positive effect on performance regardless of whether such performance is adjusted or not adjusted. We suggest that banks with various performance levels require different mechanisms to enhance their performance. A "stick" approach consisting of efficient monitoring by outside directors may ensure that low-performing banks improve their performance improvements, whereas a "carrot" approach (i.e. CEO incentive pay) is appropriate for

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

Cited by 253 publications

References 50 publications

Inside Debt and Bank Risk

Inside Debt and Bank Risk

Corporate Governance of Banks: A Survey

Does Ceo Incentive Pay Improve Bank Performance? A Quantile Regression Analysis of U.S. Commercial Banks

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