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CEO Option Compensation , Risk-taking and the Financial Crisis : Evidence from the Banking Industry
| Content Provider | Semantic Scholar |
|---|---|
| Author | Stulz, René Bebchuk, Lucian Arye |
| Copyright Year | 2012 |
| Abstract | This paper examines the relation between CEO option compensation and bank risk-taking, and the role of CEO option compensation in affecting bank performance during the 2007-2008 financial crisis. Through panel regressions, we find that over the sample period (1993-2011), option awards received by bank CEO and CEO option holdings lead to higher bank risk which is not rewarded by better performance. Bank CEOs take more risk by engaging more in financial innovation and maintaining more risky loan portfolios. Institutional investors favor high option compensation in their own interests of pursuing short-term stock price upswing, while a larger board corrects this excessive risk-taking by providing bank CEOs with less option compensation. Cross-sectional evidence shows that during the crisis period, the effect of option compensation in increasing risk-taking and worsening performance comes from exercisable option holdings. In addition to the findings regarding option compensation, stock awards are shown to affect bank risk and performance, while stock holdings play no role. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://www.efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2013-Reading/papers/EFMA2013_0417_fullpaper.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |