The Impact of Bank Merger Growth on CEO Compensation
Journal of Business Finance & Accounting, 2017, DOI: org/10.1111/jbfa.12263
56 Pages Posted: 18 Nov 2016 Last revised: 15 Aug 2017
Date Written: May 24, 2017
We examine the impact of bank mergers on chief executive officer (CEO) compensation during 1992–2014, a period characterised by significant banking consolidation. We show that CEO compensation is positively related to both merger growth and non-merger internal growth, with the former relation being higher in magnitude. While CEO pay–risk sensitivity is not significantly related to merger growth, CEO pay–performance sensitivity is negatively and significantly related to merger growth. Collectively, our results suggest that, through bank mergers, CEOs can earn higher compensation and decouple personal wealth from bank performance. Furthermore, we document a more severe agency problem in CEO compensation as a consequence of bank mergers relative to mergers in industrial firms. Finally, we find that the post-financial crisis regulatory reform of executive compensation in banks has limited effectiveness in curbing the merger–pay links.
Keywords: CEO compensation, incentives, bank mergers, financial crisis
JEL Classification: G12; G15; G32
Suggested Citation: Suggested Citation