Abstract
Inside debt compensation held by top officers of U.S. banks is negatively related to risk
and risk taking. The evidence reveals a robust and strongly negative relation between endof-
2006 inside debt and 2007–2009 bank-specific risk exposures in terms of lost stock
market value, volatility, tail risk, and the probability of financial distress. Banks with managers
having large inside debt holdings are also characterized by better-quality assets, more
conservative balance sheet management, and a stronger tendency toward traditional banking
activities. The results suggest that debt-based compensation limits bank risk and risk
taking by encouraging more conservative decision making.
Original language | English |
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Pages (from-to) | 359-385 |
Number of pages | 27 |
Journal | Journal of Financial and Quantitative Analysis |
Volume | 51 |
Issue number | 2 |
DOIs | |
Publication status | Published - 2016 |