The Impact of Bank Merger Growth on CEO Compensation

45 Pages Posted: 5 Nov 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

RBC Capital Markets

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: October/November 2017

Abstract

We examine the impact of bank mergers on chief executive officer (CEO) compensation during the period 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 relationship 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

Suggested Citation

Chen, Zhian and Hung, Wing‐Yee and Li, Donghui and Xing, Lu, The Impact of Bank Merger Growth on CEO Compensation (October/November 2017). Journal of Business Finance & Accounting, Vol. 44, Issue 9-10, pp. 1398-1442, 2017, Available at SSRN: https://ssrn.com/abstract=3064363 or http://dx.doi.org/10.1111/jbfa.12263

Zhian Chen (Contact Author)

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

RBC Capital Markets

60 South Sixth Street, Suite 1800
Minneapolis, MN 55402
United States

Donghui Li

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
1,005
PlumX Metrics