Abstract
We document that CEO risk-taking incentives induced by stock option compensation increase a bank’s contribution to systemic distress risk and systemic crash risk through reacting to common risk exposure of the banking industry. We also find that this relation operates through channels of engagement in non-interest income-generating activities and maturity mismatch associated with short-term debt financing. Further analysis reveals that CEO option-based risk-taking incentives increase investments in innovative financial products that form naturally interconnected networks, which increase systemic risk. Finally, we show that market illiquidity and financial crisis accentuate the relation between CEO risk-taking incentives and systemic risk.
| Original language | English |
|---|---|
| Pages (from-to) | 131-160 |
| Journal | Asia-Pacific Journal of Accounting & Economics |
| Volume | 23 |
| Issue number | 2 |
| Online published | 3 Mar 2016 |
| DOIs | |
| Publication status | Published - 2016 |
| Externally published | Yes |
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 3 Good Health and Well-being -
SDG 9 Industry, Innovation, and Infrastructure -
SDG 10 Reduced Inequalities
Research Keywords
- banking
- CEO risk-taking incentives
- Stock option compensation
- systemic risk
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