Quotation Kolm, Julian, Laux, Christian, Loranth, Gyöngyi. 2017. Bank Regulation, CEO Compensation, and Boards. Review of Finance. 21 (5), 1901-1932.


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Abstract

We analyze the role of using CEO compensation and capital requirements in bank regulation. With a passive uninformed board that delegates the choice of bank strategy to the CEO, requiring a compensation contract where the CEO receives a fixed fraction of total bank payoff eliminates the risk shifting problem and can implement first best; no additional regulatory limit on bank leverage is needed. With an informed, active board that represents shareholder interests, however, there exists no CEO compensation that assures that the socially optimal level of risk is chosen. The optimal policy mix consists of deferred compensation for the CEO, a bonus cap or a compensation that is linear in total payoff, and a constraint on bank leverage. Regulating CEO compensation allows to relax regulatory capital requirements.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Review of Finance
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-A, VW-A, WH-A
Language English
Title Bank Regulation, CEO Compensation, and Boards
Volume 21
Number 5
Year 2017
Page from 1901
Page to 1932
DOI http://dx.doi.org/10.1093/rof/rfw046
Open Access N

Associations

People
Kolm, Julian (Former researcher)
Laux, Christian (Details)
Loranth, Gyöngyi (Former researcher)
Organization
Institute for Finance, Banking and Insurance IN (Details)
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