CEO Risk Incentives and the Riskiness of Securitization Transactions in the Financial Industry

International Journal of Banking, Accounting and Finance, Forthcoming

Posted: 20 Apr 2016 Last revised: 16 Nov 2016

Date Written: April 19, 2016

Abstract

The paper investigates the role of CEO risk incentives in increasing the riskiness of securitization transactions in the financial industry. Using a sample of US financial institutions, and a system model to account for the endogeneity problem between risk incentives and securitization, we document that: i) financial institutions whose CEOs had high risk incentives engaged in securitization transactions to a larger extent than did financial institutions guided by CEOs with low risk incentives, and ii) CEOs with high risk-related incentives securitized riskier loans than did CEOs with low incentives. Thus, our results suggest that CEO risk incentives induced banks to focus on securitizations and increased the riskiness of such transactions.

Keywords: Executive compensation, CEO incentives, securitization, financial crisis, banking industry, risk incentives, equity incentives, corporate governance, accounting, financial institution, securitization accounting, risk taking

JEL Classification: M41, M12, G21, G32, G01

Suggested Citation

Fabrizi, Michele and Parbonetti, Antonio, CEO Risk Incentives and the Riskiness of Securitization Transactions in the Financial Industry (April 19, 2016). International Journal of Banking, Accounting and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2767075 or http://dx.doi.org/10.2139/ssrn.2767075

Michele Fabrizi (Contact Author)

University of Padua ( email )

Via del Santo, 33
Padova, Padova 35123
Italy

Antonio Parbonetti

University of Padua ( email )

Via del Santo 33
Padova, 35123
Italy
+39 049 8274261 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
313
PlumX Metrics