- Review of Finance Journal
- August 2018
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- Usual measures of the risk-taking incentives of bank CEOs do not capture the risk-shifting incentives that the exposure of a CEO's wealth to his firm's stock price (delta) creates in highly levered firms. We find evidence consistent with the importance of these incentives for bank CEOs: In a sample of large US financial firms, a higher pre-crisis delta is associated with a significantly higher probability of failure during the 2007-10 financial crisis in highly levered firms, but not in less levered firms.
- executive compensation; risk-taking incentives; leverage; banks; financial crisis; stock option portfolios; executive-compensation; corporate governance; severance pay; debt; sensitivities; performance; managers; default; choice