Inside Debt and Bank Risk

Research output: Contribution to journalArticleAcademicpeer-review

40 Citations (Scopus)

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 languageEnglish
Pages (from-to)359-385
Number of pages27
JournalJournal of Financial and Quantitative Analysis
Volume51
Issue number2
DOIs
Publication statusPublished - 2016

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