CEO Compensation and Risk-taking at Financial Firms: Evidence from U.S. Federal Loan Assistance
Southern Methodist University
Swaminathan L. Kalpathy
Texas Christian University - M.J. Neeley School of Business
July 16, 2013
We examine whether CEO compensation before the 2007 financial crisis led to excessive risk taking in sixty-nine large financial firms. Risk taking is proxied by the extent of U.S. Federal Reserve emergency loans provided to these firms. We find that the amount of emergency loans and total days the loans are outstanding are both increasing in pre-crisis CEO risk-taking incentives. Consistent with the secretive nature of these loan programs, the extent of loan assistance is uncorrelated with crisis period stock returns. Our results somewhat support recent regulatory initiatives on managerial incentive compensation for systemically important financial firms.
Number of Pages in PDF File: 44
Keywords: CEO Compensation, CEO Incentives, Financial Crisis, Financial Deregulation, Federal Emergency Loans
JEL Classification: G01, G21, G32working papers series
Date posted: June 24, 2011 ; Last revised: July 17, 2013
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