Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/187692
Authors: 
Colonnello, Stefano
Koetter, Michael
Wagner, Konstantin
Year of Publication: 
2018
Series/Report no.: 
IWH Discussion Papers 7/2018
Abstract: 
We investigate the (unintended) effects of bank executive compensation regulation. Capping the share of variable compensation did not induce an executive director exodus from EU banking because banks raised fixed compensation sufficiently to retain executives. However, risk-adjusted bank performance deteriorated, consistent with reduced incentives to exert effort and insurance effects associated with fixed compensation components. We also find that banks with directors that are more affected by the bonus cap exhibit more systemic as well as systematic risk. This result casts doubts on the effectiveness of the policy to achieve its aim to enhance financial stability.
Subjects: 
banks
bonus cap
executive compensation
executive turnover
JEL: 
G21
G32
G34
Document Type: 
Working Paper
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