Abstract

http://ssrn.com/abstract=1898933
 


 



Managerial Incentives, Market Power, and Bank Risk-Taking


Mamiza Haq


University of Queensland - Finance; Financial Research Network (FIRN)

Shams Pathan


The University of Queensland; University of Queensland - Business School; Financial Research Network (FIRN)

Barry Williams


Bond University - Faculty of Business; KOF Swiss Economic Institute ETH Zurich

July 29, 2011


Abstract:     
We investigate the effects of managerial incentives and market power on bank risk-taking for a sample of 212 large U.S. bank holding companies over the period 1997-2004 (comprising 1,534 observations). Bank managers have incentives to prefer less risk, while bank shareholders prefer higher risk, and market power is the centerpiece of any bank regulation. However, the literature is inconclusive regarding the effects of managerial incentives and market power on bank risk-taking. Our results reveal a U-shaped relationship between bank risk-taking and CEO ownership (a proxy for managerial incentives) and between bank risk-taking and charter value (a proxy for market power). Particularly, we find that bank risk-taking initially decreases and then increases with both CEO ownership and charter value. These convex relations are robust for various bank risk-taking proxies, different estimation approaches to account for endogeneity, and several bank-specific control variables.

Number of Pages in PDF File: 33

Keywords: Bank risk-taking, Managerial incentives, Market power, CEO ownership, Charter value, Bank holding companies

JEL Classification: G21, G28, G30, G32, G38

working papers series


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Date posted: July 31, 2011  

Suggested Citation

Haq, Mamiza and Pathan, Shams and Williams, Barry, Managerial Incentives, Market Power, and Bank Risk-Taking (July 29, 2011). Available at SSRN: http://ssrn.com/abstract=1898933 or http://dx.doi.org/10.2139/ssrn.1898933

Contact Information

Mamiza Haq
University of Queensland - Finance ( email )
Australia
Financial Research Network (FIRN) ( email )
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Shams Pathan (Contact Author)
The University of Queensland ( email ) ( email )
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Brisbane, 4072
Australia
HOME PAGE: http://www.business.uq.edu.au/staff/staff_details?name=spathan&action=show_all

University of Queensland - Business School ( email )
The University of Queensland
Brisbane, Queensland 4072
Australia
61 7 3346 8075 (Phone)
61 7 3346 8166 (Fax)
HOME PAGE: http://www.business.uq.edu.au/staff/details/shams-pathan
Financial Research Network (FIRN) ( email ) ( email )
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Brisbane, 4072
Australia
HOME PAGE: http://www.business.uq.edu.au/staff/staff_details?name=spathan&action=show_all

Barry Williams
Bond University - Faculty of Business ( email )
Gold Coast, QLD 4229
Australia
KOF Swiss Economic Institute ETH Zurich
Zurich
Switzerland
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