Effects of incentive pay on systemic risk: evidence from CEO compensation and CoVar

Natalya Zelenyuk*, Robert Faff

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

1 Citation (Scopus)

Abstract

We examine the role of chief executive officers’ (CEO) pay in contribution to systemic risk in the USA. In particular, by extending the CoVar model of Adrian and Brunnermeier (Am Econ Rev 106(7):1705–1741, 2016), we document that the systemic risk measure of dollar delta CoVar is positively influenced by CEO pay. Differentiation between the types of CEO pay incentives suggests that bonus and option awards comprise major contribution to systemic risk. It follows that governance measures that are aimed at systemic risk management can benefit from distinguishing between short-term and long-term CEO incentives.

Original languageEnglish
JournalEmpirical Economics
DOIs
Publication statusE-pub ahead of print - 30 Mar 2022

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