Abstract
This study examines three issues related to the sensitivity of bank CEO compensation to risk, or vega: (1) its relevance compared with CEO compensation vega in industrial firms; (2) its determinants; and (3) its effect on bank risk-taking. Using a sample of 156 US bank holding companies (BHCs) and a benchmark sample of 544 industrial firms over the period 1993-2006, we find that the vega of CEO compensation in banking is of a much smaller magnitude than the vega of CEO compensation in industrial firms, despite an effort by BHCs to increase it since the mid-1990s. We also find that larger BHCs with better investment opportunities and those that operate in a deregulated environment reward their CEOs with a compensation that has a higher sensitivity to risk. Finally, our analyses show that BHCs in which CEOs receive a higher compensation vega assume a higher risk.
| Original language | English |
|---|---|
| Pages (from-to) | 1218-1247 |
| Number of pages | 30 |
| Journal | Journal of Business Finance and Accounting |
| Volume | 37 |
| Issue number | 9-10 |
| DOIs | |
| Publication status | Published - Nov 2010 |
Keywords
- Banking
- Delta
- Deregulation
- Executive compensation
- Risk-taking
- Stock options
- Vega
ASJC Scopus subject areas
- Accounting
- Business, Management and Accounting (miscellaneous)
- Finance