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

Michael K. Fung

doi:10.1016/j.econlet.2020.109084

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

Michael K. Fung

Research output: Journal article publication › Journal article › Academic research › peer-review

1 Citation (Scopus)

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 language	English
Article number	109084
Journal	Economics Letters
Volume	191
Early online date	19 Mar 2020
DOIs	https://doi.org/10.1016/j.econlet.2020.109084
Publication status	Published - Jun 2020

Keywords

Banking
Executive compensation
Risk

ASJC Scopus subject areas

Finance
Economics and Econometrics

More information

10.1016/j.econlet.2020.109084

http://hdl.handle.net/10397/93346

Cite this

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

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.",

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AB - 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.

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KW - Risk

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DO - 10.1016/j.econlet.2020.109084

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VL - 191

JO - Economics Letters

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

Abstract

Keywords

ASJC Scopus subject areas

More information

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