“CEO Incentives and Bank Risk over the Business Cycle” by Tanseli Sava\u015fer
\nAssistant Professor of Finance
\nFaculty of Business Administration
\nDate: 15 December, 2017 Friday
\nTime: 13:40-14:40
\nPlace: Faculty of Business Administration,
\nUmit Berkman Seminar Room <\/p>\n
Abstract:
\nDue to government guarantees provided to financial firms, bank shareholders have a natural preference for risky lending, taking excessive risks at the expense of debt holders and taxpayers (risk shifting). We propose and test a joint hypothesis that these risk-shifting incentives become more prominent as economic conditions deteriorate and that shareholder’s increased risk appetite leads to a stronger relationship between managerial risk-taking incentives and bank risk in a contracting economy. Consistent with this hypothesis, we find that the same level of pay-for-risk incentives given to a CEO leads to higher bank risk during economic downturns. This is because shareholders’ increased risk preference is passed on to the manager (through stock-based compensation) increasing the sensitivity of bank risk to CEO pay-for-risk incentives. Our results suggest that holding sufficiently high amount of bank capital limits this effect, making the CEO compensation-bank risk relationship less sensitive to the underlying macroeconomic environment. <\/p>\n","protected":false},"excerpt":{"rendered":"
“CEO Incentives and Bank Risk over the Business Cycle” by Tanseli Sava\u015fer Assistant Professor of Finance Faculty of Business Administration Date: 15 December, 2017 Friday Time: 13:40-14:40 Place: Faculty of Business Administration, Umit Berkman Seminar Room Abstract: Due to government guarantees provided to financial firms, bank shareholders have a natural [\u2026] <\/p>\n