Executive Compensation and Risk Taking in European Banking

RESEARCH HANDBOOK ON INTERNATIONAL BANKING AND GOVERNANCE, J.R. Barth, C. Lin, C. Wihlborg, eds., Edward Elgar, 2012

33 Pages Posted: 7 Mar 2012

See all articles by Rym Ayadi

Rym Ayadi

HEC Montreal ; HEC Montreal

Emrah Arbak

Centre for European Policy Studies (CEPS); University of Lyon II - Groupe dAnalyse et de Théorie Economique (GATE)

Willem Pieter De Groen

Centre for European Policy Studies (CEPS)

Date Written: August 3, 2011

Abstract

Recent financial crisis has renewed attention on compensation schemes and their impact on risk-taking in depository institutions. Without ample theoretical and empirical backing, the recent policy proposals in the EU have suggested that long-term incentive plans that are closely linked to bank performance would lead to less risk-taking. Using a novel database on executive pay for 53 systemically important banks in the EU for the years 1999-2009, our analysis shows, instead, that the presence of the so-called “long-term incentive plans” may actually augment risk-taking. Moreover, although their values depend closely on long-term market performance, the presence of an option plan does not seem to lead to more risk. Our results are robust to the consideration of the joint determination of compensation and risk as well as alternative risk measures.

Keywords: Risk-taking, banking industry, executive compensation, stock options, financial crisis

JEL Classification: G12, G21, J33

Suggested Citation

Ayadi, Rym and Ayadi, Rym and Arbak, Emrah and Pieter De Groen, Willem, Executive Compensation and Risk Taking in European Banking (August 3, 2011). RESEARCH HANDBOOK ON INTERNATIONAL BANKING AND GOVERNANCE, J.R. Barth, C. Lin, C. Wihlborg, eds., Edward Elgar, 2012, Available at SSRN: https://ssrn.com/abstract=2017527

Rym Ayadi

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

Emrah Arbak (Contact Author)

Centre for European Policy Studies (CEPS) ( email )

1 Place du Congrès
Brussels, 1000
Belgium

University of Lyon II - Groupe dAnalyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

Willem Pieter De Groen

Centre for European Policy Studies (CEPS)

1 Place du Congres, 1000
Brussels, 1000
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
409
Abstract Views
1,638
Rank
144,785
PlumX Metrics