Who Benefits from Bank Trading Activity: Shareholders or Employees?

57 Pages Posted: 13 May 2013 Last revised: 10 Mar 2016

See all articles by Michael R. King

Michael R. King

Gustavson School Of Business

Nadia Massoud

Melbourne Business School, University of Melbourne

Keke Song

Melbourne Business School, the University of Melbourne

Date Written: February 2016

Abstract

The global financial crisis triggered a political debate about bank bonuses and their impact on risk-taking. We investigate whether excessive levels of trading activity have adverse effects for bank shareholders, and the impact of variable compensation on outcomes. We find that excessive trading activity is positively correlated with bank risk, negatively correlated with bank profitability and buy-and-hold returns, both during and after the subprime crisis. We find banks with excessive trading activity underperforms a portfolio of banks with little or no trading activity. This underperformance is greatest for banks where employee compensation represents a higher share of trading profits.

Keywords: Bank holding companies, trading activity, risk-taking, stock performance, compensation, financial crisis

JEL Classification: G1, G21, G32

Suggested Citation

King, Michael Robert and Massoud, Nadia and Song, Keke, Who Benefits from Bank Trading Activity: Shareholders or Employees? (February 2016). Available at SSRN: https://ssrn.com/abstract=2264344 or http://dx.doi.org/10.2139/ssrn.2264344

Michael Robert King (Contact Author)

Gustavson School Of Business ( email )

University of Victoria
Business & Economics Building, Room 246
Victoria, British Columbia V8W 2Y2
Canada
250-721-6425 (Phone)

HOME PAGE: http://https://www.uvic.ca/gustavson/faculty/faculty/faculty/current/kingm.php

Nadia Massoud

Melbourne Business School, University of Melbourne ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia
+61 3 9349 8130 (Phone)
+61 3 9349 8136 (Fax)

HOME PAGE: http://mbs.edu/facultyresearch/facultydirectory/Pages/NadiaMassoud.aspx

Keke Song

Melbourne Business School, the University of Melbourne ( email )

200 Leicester Steet
Carlton, 3053
Australia

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