Bankers on the Board and CEO Incentives
European Financial Management, Forthcoming
45 Pages Posted: 8 Oct 2014 Last revised: 9 Jun 2016
Date Written: April 29, 2016
Abstract
Governance improvement measures often demand more financial experts on corporate boards. Directors from the lending bank require particular attention because the conflicts of interest between shareholders and debtholders would be severe. Hence, we examine whether commercial banker directors work in the best interests of shareholders in providing incentives to the CEO. We find that the CEO’s compensation VEGA is lower if an affiliated banker director is on the board, especially when the director is the chair of the compensation committee. Further, commercial banker directors increase debt-like compensation and make it more sensitive to performance and less sensitive to risk.
Keywords: bankers on board, financial expertise, conflict of interests, governance, board of directors, CEO compensation, CEO turnover
JEL Classification: G14
Suggested Citation: Suggested Citation