Abstract
We investigate the effect of managerial incentives and market power on bank risk-taking for a sample of 212 large US bank holding companies over 1997-2004 (i.e. 1,534 observations). Bank managers have incentives to prefer less risk while bank shareholders have preference for 'excessive' risk. Likewise, the market power is the centrepiece of any bank regulation. However, the literature is inconclusive as to the effect of managerial incentives and market power on bank risk-taking. Our results reveal a U-shape relation between bank risk and CEO ownership (proxy for managerial incentives) and between bank risk and charter value (proxy for market power). Particularly, we find that bank risk initially decreases and then increases with both CEO ownership and charter value. These convex relations are robust to various bank risk proxies, different estimation approaches to account for endogeneity and several bank specific control variables.
| Original language | English |
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| Title of host publication | 2010 AFAANZ Conference |
| Publisher | Accounting and Finance Association of Australia and New Zealand |
| Pages | 1 |
| Number of pages | 32 |
| DOIs | |
| Publication status | Published - 2010 |
| Event | Accounting and Finance Association of Australia and New Zealand (AFAANZ) conference - Darwin, Darwin, Australia Duration: 3 Jul 2011 → 5 Jul 2011 http://www.afaanz.org/conferences |
Conference
| Conference | Accounting and Finance Association of Australia and New Zealand (AFAANZ) conference |
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| Abbreviated title | AFAANZ 2011 |
| Country/Territory | Australia |
| City | Darwin |
| Period | 3/07/11 → 5/07/11 |
| Internet address |