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Executive Compensation and Business Policy Choices at U.S. Commercial Banks
DeYoung, Robert Peng, Emma Y. Yan, Meng
DeYoung, Robert
Peng, Emma Y.
Yan, Meng
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Abstract
This study examines whether and how the terms of CEO compensation contracts at large
commercial banks between 1994 and 2006 influenced, or were influenced by, the risky business
policy decisions made by these firms. We find strong evidence that bank CEOs responded to
contractual risk-taking incentives by taking more risk; bank boards altered CEO compensation to
encourage executives to exploit new growth opportunities; and bank boards set CEO incentives
in a manner designed to moderate excessive risk-taking. These relationships are strongest during
the second half of our sample, after deregulation and technological change had expanded banks’
capacities for risk-taking.
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Date
2010-01
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Federal Reserve Bank of Kansas City
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DeYoung, Robert. Peng, Emma Y. Yan, Meng. (2010) "Executive Compensation and Business Policy Choices at U.S. Commercial Banks." Journal of Financial and Quantitative Analysis,