Arbeitspapier

Executive compensation and risk taking

This paper studies the connection between risk taking and executive compensation in financial institutions. A theoretical model of shareholders, debtholders, depositors, and an executive suggests that 1) in principle, excessive risk taking (in the form of risk shifting) may be addressed by basing compensation on both stock price and the price of debt (proxied by the credit default swap spread), but 2) shareholders may be unable to commit to designing compensation contracts in this way and indeed may not want to because of distortions introduced by either deposit insurance or naive debtholders. The paper then provides an empirical analysis that suggests that debt-like compensation for executives is believed by the market to reduce risk for financial institutions.

Sprache
Englisch

Erschienen in
Series: Staff Report ; No. 456

Klassifikation
Wirtschaft
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
Thema
Executive compensation
risk taking

Ereignis
Geistige Schöpfung
(wer)
Bolton, Patrick
Mehran, Hamid
Shapiro, Joel
Ereignis
Veröffentlichung
(wer)
Federal Reserve Bank of New York
(wo)
New York, NY
(wann)
2010

Handle
Letzte Aktualisierung
10.03.2025, 11:45 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Bolton, Patrick
  • Mehran, Hamid
  • Shapiro, Joel
  • Federal Reserve Bank of New York

Entstanden

  • 2010

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