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Bank Risk Taking at the Onset of the Current Banking Crisis
Author(s) -
Fortin Rich,
Goldberg Gerson M.,
Roth Greg
Publication year - 2010
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2010.00277.x
Subject(s) - shareholder , corporate governance , incentive , business , executive compensation , risk aversion (psychology) , compensation (psychology) , financial system , financial crisis , accounting , stock (firearms) , finance , monetary economics , economics , financial economics , market economy , mechanical engineering , psychology , expected utility hypothesis , psychoanalysis , engineering , macroeconomics
We analyze bank governance, share ownership, CEO compensation, and bank risk taking in the period leading to the current banking crisis. Using a sample of large U.S. bank holding companies (BHCs), we find that BHCs with greater managerial control, achieved through various corporate governance mechanisms, take less risk. BHCs that pay CEOs high base salaries also take less risk, while BHCs that grant CEOs more in stock options or that pay CEOs higher bonuses take more risk. The evidence is generally consistent with BHC managers exhibiting greater risk aversion than outside shareholders, but with several factors affecting managers’ risk‐taking incentives.