Inside debt, bank default risk, and performance during the crisis

Bennett, Rosalind L.; Guntay, Levent; Ünal, Haluk

doi:10.1016/j.jfi.2014.11.006

Cited by 98 publications

(52 citation statements)

References 25 publications

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“…More recently, Bennett et al (2015) show a negative association between inside debt and a market-based measure of default risk. Bolton et al (2015) also show that the mandatory disclosure of inside debt holdings of bank CEOs in 2006 was perceived positively by creditors, with higher inside debt associated with lower credit default swap (CDS) spreads.…”

Section: Recalibrating Ceo Pay To Creditor Wealth and Longer Time Hormentioning

confidence: 99%

“…Sundaram and Yermack (2007) show that 78 percent of large S&P firms in their sample had some form of inside debt arrangements, with an average CEO holding $4.2 million in pensions. In the banking industry, Bennett, Guntay, and Unal (2015) show that 72 percent of banks held some form of inside debt in 2006, with an average CEO holding nearly $3.1 million.…”

Section: Recalibrating Ceo Pay To Creditor Wealth and Longer Time Hormentioning

confidence: 99%

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Corporate Governance and Bank Risk‐taking

Srivastav¹,

Hagendorff²

2015

Corporate Governance

175

115

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Manuscript Type: ReviewResearch Question/Issue: Bank governance has become the focus of a flurry of recent research and heated policy debates. However, the literature presents seemingly conflicting evidence on the implications of governance for bank risk-taking. The purpose of this paper is to review prior work and propose directions for future research on the role of governance on bank stability. Research Findings/Insights:We highlight a number of key governance devices and how these shape bank risk-taking: the effectiveness of bank boards, the structure of CEO compensation, and the risk management systems and practices employed by banks.Theoretical/Academic Implications: Prior work primarily views bank governance as a mechanism to protect the interests of bank shareholders only. However, given that taxpayerfunded guarantees protect a substantial share of banks' liabilities and that banks are highlyleveraged, shareholder-focused governance may well subordinate the interests of other stakeholders and exacerbate risk-taking concerns in the banking industry. Our review highlights the need for internal governance mechanisms to mitigate such behavior by reflecting the needs of shareholders, creditors and the taxpayer.Practitioner/Policy Implications: Our review argues that the relationship between governance and risk is central from a financial stability perspective. Future research on issues highlighted in the review offer a footing for reforming bank governance to constrain potentially undesirable risk-taking by banks.

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Section: Recalibrating Ceo Pay To Creditor Wealth and Longer Time Hormentioning

confidence: 99%

Section: Recalibrating Ceo Pay To Creditor Wealth and Longer Time Hormentioning

confidence: 99%

Corporate Governance and Bank Risk‐taking

Srivastav¹,

Hagendorff²

2015

Corporate Governance

175

115

View full text Add to dashboard Cite

show abstract

“…andChesney, Stromberg, and Wagner (2018) do not use a measure of inside debt. However, VanBekkum (2016) andBennett, Güntay, and Unal (2015) find that in their models with inside debt, delta and vega that only the coefficient on inside debt is statistically significant.Tung and Wang's (2011) find generally similar results across a wide range of risk measures, their measure of inside debt (CEO debt-equity ratio) is significantly negatively correlated with risk and other adverse outcomes, while their variables measuring delta and vega are insignificant. The sole exception is that bank bond returns are significantly positively correlated with delta, significantly negatively correlated with vega and not correlated with the CEO debt-equity ratio (when all three CEO incentive measures are in the same equation).…”

mentioning

confidence: 84%

“…equity risk) led to lower stock returns over the period from July 2007 to December 2008. Van Bekkum (2016) similarly found that delta was associated with larger losses but also lower measures of equity volatility and lower measures of overall risk over the July 2007 to March 2009 period.The coefficient on vega was consistently insignificant in his study Bennett, Güntay, and Unal (2015). find that expected default probabilities went up and excess stock returns went down in their estimation of models that have either with delta or vega between January 2007 and December 2008 Chesney, Stromberg, and Wagner (2018).…”

mentioning

confidence: 90%

Is stricter regulation of incentive compensation the missing piece?

Wall

2019

J Bank Regul

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Although a number of steps have been taken to reduce the risk of financial stability, some significant weaknesses remain. This paper examines whether stricter regulation of incentive compensation is the missing piece needed to reduce risk to acceptable levels. Unfortunately, this review of the literatures on the relationship of risk to bank chief operating officer and bank employee compensation suggest both have some potential but that significant concerns remain in both cases. At this point, we cannot confidently say that compensation regulation is the missing piece.JEL classification: G01, G21, G28

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“…Lawmakers agreed and included several sections covering executive compensation in the Dodd–Frank Wall Street Reform and Consumer Protection Act. Empirical evidence confirms that compensation practices and managerial ownership can increase risk, but not universally (Sullivan and Spong, ; Fortin, Goldberg and Roth, ; DeYoung, Peng and Yan, ; Raviv and Sisli‐Ciamarra, ; Bennett, Guntay and Unal, ).…”

Section: Introductionmentioning

confidence: 96%

Bank‐Owned Life Insurance and Bank Risk

Davidson

2017

The Financial Review

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The use of bank‐owned life insurance (BOLI) has more than tripled since 2001 and has caught the attention of the Office of the Comptroller of the Currency. I find increases in BOLI lead to higher levels of liquidity risk, credit risk, and interest rate risk. Robustness tests confirm these results and suggest over‐ and underinvestment in BOLI and use of BOLI as a tax shelter contribute to risk increases. Results indicate that the concerns expressed by regulators are warranted, and suggest insurance may not always have the intended effect of reducing firm risk because of unintended consequences or misuse.

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Inside debt, bank default risk, and performance during the crisis

Cited by 98 publications

References 25 publications

Corporate Governance and Bank Risk‐taking

Corporate Governance and Bank Risk‐taking

Is stricter regulation of incentive compensation the missing piece?

Bank‐Owned Life Insurance and Bank Risk

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