Title: Deregulation and the relationship between bank CEO compensation and risk taking
First published: 2003
Description: "The deregulation of the banking industry during the 1990s provides a natural (public policy) experiment for investigating how firms adjust their executive compensation contracts as the environment in which they operate becomes relatively more competitive.  Using the Riegle-Neal Act of 1994 as a focal point, we investigate how banks changed the equity-based component of bank CEO compensation contracts.  We also examine the relationships between equity- based compensation and risk, capital structure, and investment opportunity set.  Consistent with theoretical predictions, we find that after deregulation, the equity- based component of bank CEO compensation increases significantly on average for the industry.  Additionally, we find that more risky banks have significantly higher levels of equity-based compensation, as do banks with more investment opportunities.  But, more levered banks do not have higher levels of equity-based CEO compensation.  Finally, we observe that most of these relationships become more powerful in our post- deregulation period"--Federal Reserve Bank of Chicago web site.
LC classification: HG2401