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Regulation of Compensation and Systemic Risk: Evidence from the UK
Author(s) -
KLEYMENOVA ANYA,
TUNA İREM
Publication year - 2021
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.12355
Subject(s) - remuneration , systemic risk , executive compensation , unintended consequences , incentive , business , accounting , compensation (psychology) , economics , financial system , actuarial science , monetary economics , finance , financial crisis , microeconomics , political science , macroeconomics , psychology , psychoanalysis , law
This paper studies the consequences of regulating executive compensation at financial institutions by examining the introduction of the UK Remuneration Code in 2010, which aimed to change the decision‐making horizon and risk‐taking incentives of bank executives. We find that, although both banks and nonbanks show increased contribution and sensitivity to systemic risk in the United Kingdom post‐2010, this increase is lower for UK banks, in line with the intent of the regulation. However, UK banks also experience higher unforced CEO turnover when compared to other UK firms. Therefore, while the regulation may have had the desired effect on systemic risk, it may also have given rise to some unintended consequences.