Title

Does Stock Option-Based Executive Compensation Induce Risk-Taking? An Analysis Of The Banking Industry

Keywords

Banking industry; Executive compensation; Risk-taking

Abstract

We investigate the relation between option-based executive compensation and market measures of risk for a sample of commercial banks during the period of 1992-2000. We show that following deregulation, banks have increasingly employed stock option-based compensation. As a result, the structure of executive compensation induces risk-taking, and the stock of option-based wealth also induces risk-taking. The results are robust across alternative risk measures, statistical methodologies, and model specifications. Overall, our results support a management risk-taking hypothesis over a managerial risk aversion hypothesis. Our results have important implications for regulators in monitoring the risk levels of banks. © 2005 Elsevier B.V. All rights reserved.

Publication Date

3-1-2006

Publication Title

Journal of Banking and Finance

Volume

30

Issue

3

Number of Pages

915-945

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1016/j.jbankfin.2005.06.004

Socpus ID

33644796781 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/33644796781

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