CEO Pay Gap and Bank Risk-taking

43 Pages Posted: 8 Dec 2019

See all articles by Robert DeYoung

Robert DeYoung

University of Kansas School of Business

Mamiza Haq

University of Queensland - Finance; Financial Research Network (FIRN)

Jacob Morgan

affiliation not provided to SSRN

Shams Pathan

Curtin University; Financial Research Network (FIRN)

Date Written: August 15, 2019

Abstract

The large compensation received by bank executives is among the many factors blamed for the risk-taking that led to the 2008-2009 financial crisis. We test whether and how pay disparities between CEO and non-CEO executives—the so-called CEO pay gap—influenced risk taking at publicly traded commercial banks in the U.S. between 1992 and 2014. Perhaps surprisingly, we find strong evidence that larger CEO pay gaps are associated with lower risk levels, improved financial performance, and greater information transparency. Our results imply that placing absolute limits on bank CEO pay would likely result in increased bank risk-taking.

Keywords: bank risk-taking, CEO power, CEO pay gap, executive compensation, tournament incentive, discretionary loan loss provision, performance

JEL Classification: G01, G21, G32, G34, J33, M12, M52

Suggested Citation

DeYoung, Robert and Haq, Mamiza and Morgan, Jacob and Pathan, Shams, CEO Pay Gap and Bank Risk-taking (August 15, 2019). Available at SSRN: https://ssrn.com/abstract=3491344 or http://dx.doi.org/10.2139/ssrn.3491344

Robert DeYoung (Contact Author)

University of Kansas School of Business ( email )

Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States
785-864-1806 (Phone)

Mamiza Haq

University of Queensland - Finance ( email )

Australia

Financial Research Network (FIRN) ( email )

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

Jacob Morgan

affiliation not provided to SSRN

Shams Pathan

Curtin University ( email )

Kent Street
Bentley
Perth, WA WA 6102
Australia

Financial Research Network (FIRN) ( email )

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

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