Executive Compensation and Business Policy Choices at U.S. Commercial Banks

55 Pages Posted: 31 Jan 2010 Last revised: 19 Jun 2015

See all articles by Robert DeYoung

Robert DeYoung

University of Kansas School of Business

Emma Y. Peng

Fordham University - Accounting Area

Meng Yan

Fordham University - Gabelli School of Business

Date Written: October 1, 2010

Abstract

This study examines whether and how the terms of CEO compensation contracts at large commercial banks between 1994 and 2006 influenced, or were influenced by, the risky business policy decisions made by these firms. We find strong evidence that bank CEOs responded to contractual risktaking incentives by taking more risk; systematic evidence that bank boards altered CEO compensation to encourage executives to exploit new growth opportunities; and more limited evidence that bank boards set CEO incentives in a manner designed to moderate excessive risk-taking. These relationships are strongest during the second half of our sample, after deregulation and technological change had expanded banks’ capacities for risk-taking, and for the largest banking companies, which are better strategically positioned to exploit these opportunities.

Keywords: executive compensation, risk taking, commercial banks

Suggested Citation

DeYoung, Robert and Peng, Emma Y. and Yan, Meng, Executive Compensation and Business Policy Choices at U.S. Commercial Banks (October 1, 2010). Journal of Financial and Quantitative Analysis (JFQA), Vol. 48, No. 1, 2013. Available at SSRN: https://ssrn.com/abstract=1544490 or http://dx.doi.org/10.2139/ssrn.1544490

Robert DeYoung (Contact Author)

University of Kansas School of Business ( email )

Summerfield Hall
1300 Sunnyside Avenue
Lawrence, KS 66045
United States
785-864-1806 (Phone)

Emma Y. Peng

Fordham University - Accounting Area ( email )

1790 Broadway, 13th FL
New York, NY 10019
United States

Meng Yan

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
Bronx, NY 10458
United States

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