Abstract

http://ssrn.com/abstract=2220810
 
 

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Banks v. Industrials: Executive Compensation, Securitization, and the Financial Crisis


Jonathan C. Lipson


Temple University - James E. Beasley School of Law

Rachel Martin


University of Wisconsin - Madison - Department of Accounting and Information Systems

Ella Mae Matsumura


University of Wisconsin-Madison - Department of Accounting and Information Systems

Emre Unlu


University of Nebraska at Lincoln

May 10, 2013

Temple University Legal Studies Research Paper No. 2013-11

Abstract:     
We assess the effect that asset securitization has on executive compensation among banks and non-bank (“industrial”) firms. Securitization is the process whereby firms “sell” financial assets in transactions that bear many characteristics of a loan. Scholars and policy makers have expressed concern about the agency costs associated with such transactions because they inject liquidity that managers may be tempted to capture through excessive compensation.

Using a set of over 20,000 firm-year observations, we compare the effect that securitization has on CEO compensation at roughly 2,500 unique firms. We find that banks that securitize pay their executives more than banks that do not, and this difference is both statistically and economically significant. Interestingly, we find no meaningful difference when comparing the compensation practices of industrial firms that do and do not securitize. We attribute the difference between banks and industrials on these measures to special regulatory and informational attributes of banks.

Our findings advance understandings of the causes of the credit crisis, and have implications for ongoing debates about the scope and nature of efforts to reform both securitization and executive compensation.

Number of Pages in PDF File: 43

Keywords: executive compensation, securitization, agency costs, liquidity, banks, industrial firms, bank regulation, Dodd-Frank

JEL Classification: K12, K22, K23

working papers series


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Date posted: February 27, 2013 ; Last revised: May 23, 2013

Suggested Citation

Lipson, Jonathan C. and Martin, Rachel and Matsumura, Ella Mae and Unlu, Emre, Banks v. Industrials: Executive Compensation, Securitization, and the Financial Crisis (May 10, 2013). Temple University Legal Studies Research Paper No. 2013-11. Available at SSRN: http://ssrn.com/abstract=2220810 or http://dx.doi.org/10.2139/ssrn.2220810

Contact Information

Jonathan C. Lipson (Contact Author)
Temple University - James E. Beasley School of Law ( email )
1719 N. Broad Street
Philadelphia, PA 19122
United States
Rachel Martin
University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )
School of Business
975 University Avenue
Madison, WI 53706
United States
Ella Mae Matsumura
University of Wisconsin-Madison - Department of Accounting and Information Systems ( email )
School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-9731 (Phone)
608-263-0477 (Fax)
Emre Unlu
University of Nebraska at Lincoln ( email )
Lincoln, NE 68588
United States
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