Leverage, CEO Risk–Taking Incentives, and Bank Failure during the 2007–2010 Financial Crisis

Boyallian, Patricia and Ruiz-Verdu, Pablo (2018) Leverage, CEO Risk–Taking Incentives, and Bank Failure during the 2007–2010 Financial Crisis. Review of Finance, 22 (5). pp. 1763-1805. ISSN 1572-3097

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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 firm’s stock price (delta) creates in highly levered firms. We find evidence consistent with the importance of these incentives for bank CEOs: In a sample of large U.S. financial firms, a higher pre-crisis delta is associated with a significantly higher probability of failure during the 2007–2010 financial crisis in highly levered firms, but not in less levered firms.

Item Type:
Journal Article
Journal or Publication Title:
Review of Finance
Additional Information:
This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Review of Finance following peer review. The definitive publisher-authenticated version Patricia Boyallian, Pablo Ruiz-Verdú; Leverage, CEO Risk-Taking Incentives, and Bank Failure during the 2007–10 Financial Crisis, Review of Finance, Volume 22, Issue 5, 1 August 2018, Pages 1763–1805, https://doi.org/10.1093/rof/rfx051 is available online at: https://academic.oup.com/rof/article/22/5/1763/4600197
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2003
Subjects:
ID Code:
88453
Deposited By:
Deposited On:
27 Oct 2017 12:22
Refereed?:
Yes
Published?:
Published
Last Modified:
11 Aug 2020 02:03