Leverage, CEO risk-taking incentives, and bank failure during the 2007-10 financial crisis
Publisher:
Oxford University Press
Issued date:
2018-08-01
Citation:
Boyallian,P., Ruiz-Verdú, P.(2018). Leverage, CEO Risk-Taking Incentives, and Bank Failure during the 2007–10 Financial Crisis. Review of Finance, 22 (5), pp. 1763–1805
ISSN:
1572-3097
xmlui.dri2xhtml.METS-1.0.item-contributor-funder:
Comunidad de Madrid
Ministerio de Economía y Competitividad (España)
Ministerio de Ciencia, Innovación y Universidades (España)
Sponsor:
The authors acknowledge the financial support of Spain’s Ministry of Science and Innovation (through research grant ECO2009-08278), Spain’s Ministry of Economy and Competitiveness (through grant ECO2012-33308), Fundación UCEIF (through a 2013 Santander Financial Institute research grant), and Madrid Autonomous Community [through grant S2015/ HUM-3353 (EARLYFIN-CM)]
Project:
Gobierno de España. ECO2009-08278
Gobierno de España. ECO2012-33308
Comunidad de Madrid. S2015/HUM-3353
Keywords:
Executive compensation
,
Risk-taking incentives
,
Leverage
,
Banks
,
Financial crisis
,
Stock option portfolios
,
Executive-compensation
,
Corporate governance
,
Severance pay
,
Debt
,
Sensitivities
,
Performance
,
Managers
,
Default
,
Choice
JEL Classification:
G30
,
G21
,
G34
,
M12
Rights:
© The Authors 2017
Abstract:
Usual measures of the risk-taking incentives of bank CEOs do not capture
the risk-shifting incentives that the exposure of a CEO's wealth to his rm's stock price
(delta) creates in highly levered rms. We nd evidence consistent with the importance of
thes
Usual measures of the risk-taking incentives of bank CEOs do not capture
the risk-shifting incentives that the exposure of a CEO's wealth to his rm's stock price
(delta) creates in highly levered rms. We nd evidence consistent with the importance of
these incentives for bank CEOs: In a sample of large U.S. nancial rms, a higher pre-crisis
delta is associated with a signi cantly higher probability of failure during the 2007{2010
nancial crisis in highly levered rms, but not in less levered rms.
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