Is option-based compensation restrained by largest potential risk exposure? Evidence from the banking industry

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Abstract

Excessive risk taking induced by equity-based executive compensation is more (less) of a concern to the shareholders if the largest potential risk exposure is large (small). This study empirically shows that the intensity of option-based compensation to a bank's CEO decreases with the bank's largest potential risk exposure and its largest potential increase in risk exposure. These findings suggest a possibility of banks self-regulating their compensation structures.

Original languageEnglish
Article number109084
JournalEconomics Letters
Volume191
DOIs
Publication statusPublished - Jun 2020

Keywords

  • Banking
  • Executive compensation
  • Risk

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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