Executive Compensation and Business Policy Choices at U.S. Commercial Banks

DeYoung, Robert; Peng, Emma Y.; Yan, Meng

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Issue Date

2010-01

Author

DeYoung, Robert

Peng, Emma Y.

Yan, Meng

Publisher

Federal Reserve Bank of Kansas City

Type

Article

Article Version

Scholarly/refereed, publisher version

Published Version

http://www.frbkc.org/PUBLICAT/RESWKPAP/PDF/rwp10-02.pdf

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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.

URI

http://hdl.handle.net/1808/10085

Collections

School of Business Scholarly Works [212]
Distinguished Professors Scholarly Works [918]

Citation

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,

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