| This paper examines the relationship between bank management compensation and bank performance. While bank regulators assess management capability through various financial metrics, they do not explicitly consider the influence of bank management compensation on proper risk taking propensity. What has not been considered in previous research is how bank management compensation can moderate a given bank's risk level. When bank management is financially motivated to act in the long term interests of a firm and its shareholders, banks produce less volatile results. Conversely, if management is financially motivated to focus solely on asset growth and profit growth, it can lead to increased bank risk, increased performance volatility and increased risk of bank failure. |
Updated 03/19/2014