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Bank CEO Incentives and the Credit CrisisRüdiger FahlenbrachEcole Polytechnique Fédérale de Lausanne; Swiss Finance Institute Rene M. StulzOhio 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 seriesDate posted: July 28, 2009 ; Last revised: September 27, 2010Suggested CitationContact Information
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