Compensation Regulation in Banking: Executive Director Behavior and Bank Performance after the EU Bonus Cap
Stefano Colonnello, Michael Koetter, Konstantin Wagner
Journal of Accounting and Economics,
No. 1,
2023
Abstract
The regulation that caps executives’ variable compensation, as part of the Capital Requirements Directive IV of 2013, likely affected executive turnover, compensation design, and risk-taking in EU banking. The current study identifies significantly higher average turnover rates but also finds that they are driven by CEOs at poorly performing banks. Banks indemnified their executives by off-setting the bonus cap with higher fixed compensation. Although our evidence is only suggestive, we do not find any reduction in risk-taking at the bank level, one purported aim of the regulation.
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Economic Preferences for Risk-Taking and Financing Costs
Manthos D. Delis, Iftekhar Hasan, Maria Iosifidi, Chris Tsoumas
Journal of Corporate Finance,
June
2023
Abstract
We hypothesize and empirically establish that economic preferences for risk-taking in different subnational regions affect firm financing costs. We study this hypothesis by hand-matching firms' regions worldwide with the corresponding regional economic risk-taking preferences. We first show that higher regional risk-taking is positively associated with several measures of firm risk and investments. Subsequently, our baseline results show that credit and bond pricing increase when risk-taking preferences increase. For the loan of average size and maturity a one-standard-deviation increase in regional risk-taking increases interest expense by $0.54 million USD. We also find that these results are demand (firm)-driven and stronger for firms with more local shareholders.
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