Abstract

http://ssrn.com/abstract=1439859
 
 

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Bank CEO Incentives and the Credit Crisis


Rüdiger Fahlenbrach


Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Rene M. Stulz


Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

August 12, 2010

Journal of Financial Economics (JFE), Forthcoming
Charles A Dice Center Working Paper No. 2009-13
Fisher College of Business Working Paper No. 2009-03-13
Swiss Finance Institute Research Paper No. 09-27
ECGI - Finance Working Paper No. 256/2009

Abstract:     
We investigate whether bank performance during the recent credit crisis is related to chief executive officer (CEO) incentives before the crisis. We find some evidence that banks with CEOs whose incentives were better aligned with the interests of shareholders performed worse and no evidence that they performed better. Banks with higher option compensation and a larger fraction of compensation in cash bonuses for their CEOs did not perform worse during the crisis. Bank CEOs did not reduce their holdings of shares in anticipation of the crisis or during the crisis. Consequently, they suffered extremely large wealth losses in the wake of the crisis.

Number of Pages in PDF File: 43

Keywords: Financial crisis, CEO compensation, CEO incentives, Insider trading

JEL Classification: G01, G21, G32

working papers series


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Date posted: July 28, 2009 ; Last revised: September 27, 2010

Suggested Citation

Fahlenbrach, Rüdiger and Stulz, Rene M., Bank CEO Incentives and the Credit Crisis (August 12, 2010). Journal of Financial Economics (JFE), Forthcoming; Charles A Dice Center Working Paper No. 2009-13; Fisher College of Business Working Paper No. 2009-03-13; Swiss Finance Institute Research Paper No. 09-27; ECGI - Finance Working Paper No. 256/2009. Available at SSRN: http://ssrn.com/abstract=1439859 or http://dx.doi.org/10.2139/ssrn.1439859

Contact Information

Rüdiger Fahlenbrach (Contact Author)
Ecole Polytechnique Fédérale de Lausanne ( email )
Quartier UNIL-Dorigny
Extranef 211
1015 Lausanne, CH-1015
Switzerland
++41-21-693-0098 (Phone)
++41-21-693-3010 (Fax)
HOME PAGE: http://sfi.epfl.ch/fahlenbrach.html
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Rene M. Stulz
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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