Regulation of Bank Management Compensation

  • David VanHoose


The structure of management compensation influences agency problems involving both equity holders and debt holders. On the one hand, shareholders desire for managers to engage in actions that benefit the shareholders, which gives shareholders an incentive to tie managerial compensation to shareholder returns. On the other hand, tying management compensation to shareholder returns provides a potential mechanism for shareholders to shift risk to holders of the firm’s debts. As documented by Demirgüç-Kunt et al. (2008), banking firms in most nations receive government-sponsored deposit insurance. Thus, among the potential debt holders on the receiving end of risk-shifting incentives potentially created by compensation arrangements aligning interests of bank managers with those of shareholders are the taxpayers who ultimately guarantee these deposit insurance systems.


Cash Flow Risky Asset Deposit Insurance Investment Policy Inside Information 
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Copyright information

© Networks Financial Institute 2011

Authors and Affiliations

  1. 1.Baylor UniversityWacoUSA

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