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

See all articles by Zhian Chen

Zhian Chen

University of New South Wales - School of Banking and Finance; Financial Research Network (FIRN)

Wing-Yee Hung

Ernst & Young, Australia

Donghui Li

UNSW Australia Business School, School of Banking and Finance

Lu Xing

University of Glasgow

Multiple version iconThere are 2 versions of this paper

Date Written: May 24, 2017

Abstract

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

Chen, Zhian and Hung, Wing-Yee and Li, Donghui and Xing, Lu, The Impact of Bank Merger Growth on CEO Compensation (May 24, 2017). Journal of Business Finance & Accounting, 2017, DOI: org/10.1111/jbfa.12263, Available at SSRN: https://ssrn.com/abstract=2871254 or http://dx.doi.org/10.2139/ssrn.2871254

Zhian Chen

University of New South Wales - School of Banking and Finance ( email )

Kensington
High St
Sydney NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Wing-Yee Hung

Ernst & Young, Australia ( email )

321 Kent Street
Sydney, NSW 2000
Australia

Donghui Li (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Lu Xing

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

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