Bank CEO Pay-Performance Relations and the Effects of Deregulation

Posted: 25 Oct 1999

See all articles by Anthony J. Crawford

Anthony J. Crawford

University of Montana - Department of Accounting and Finance

John R. Ezzell

Pennsylvania State University - Department of Finance

James A. Miles

Pennsylvania State University - Department of Finance

Abstract

We test the deregulation hypothesis which posits that bank CEO compensation became more sensitive to performance as bank management became less regulated. We observe a significant increase in pay-performance sensitivities from our 1976-1981 regulation subsample to our 1982-1988 deregulation subsample. These increases in pay sensitivities after deregulation are observed for salary and bonus, stock options, and common stock holdings. We observe increases in the pay-performance relation associated with high capitalization ratio banks consistent with providing incentives for wealth creation while even larger increases in pay-performance sensitivity for lower-capitalization-ratio banks suggests an FDIC moral hazard problem.

JEL Classification: J33, L5

Suggested Citation

Crawford, Anthony (Tony) J. and Ezzell, John R. and Miles, James Alan, Bank CEO Pay-Performance Relations and the Effects of Deregulation. JOURNAL OF BUSINESS, Vol 68 No 2, April 1995. Available at SSRN: https://ssrn.com/abstract=6110

Anthony (Tony) J. Crawford

University of Montana - Department of Accounting and Finance ( email )

Gallagher Business Building 317
32 Campus Dr.
Missoula, MT 59812
United States

John R. Ezzell

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

James Alan Miles (Contact Author)

Pennsylvania State University - Department of Finance ( email )

601K Business Admin. Bldg.
University Park, PA 16802
United States
814-863 3565 (Phone)

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