Managerial incentives, market power and bank risk taking

Haq, Mamiza, Pathan, Shams and Williams, Barry (2010). Managerial incentives, market power and bank risk taking. In: 2010 AFAANZ Conference, Christchurch, New Zealand, (1-31). 4-6 July 2010.

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Author Haq, Mamiza
Pathan, Shams
Williams, Barry
Title of paper Managerial incentives, market power and bank risk taking
Conference name 2010 AFAANZ Conference
Conference location Christchurch, New Zealand
Conference dates 4-6 July 2010
Place of Publication Carlton, VIC, Australia
Publisher Accounting and Finance Association of Australia and New Zealand (AFAANZ)
Publication Year 2010
Sub-type Fully published paper
Open Access Status
Start page 1
End page 31
Total pages 31
Language eng
Abstract/Summary We investigate the effect of managerial incentives and market power on bank risk-taking for a sample of 212 large US bank holding companies over 1997-2004 (i.e. 1,534 observations). Bank managers have incentives to prefer less risk while bank shareholders have preference for ‘excessive’ risk. Likewise, the market power is the centre piece of any bank regulation. However, the literature is inconclusive as to the effect of managerial incentives and market power on bank risk-taking. Our results reveal a U-shape relation between bank risk and CEO ownership (proxy for managerial incentives) and between bank risk and charter value (proxy for market power). Particularly, we find that bank risk initially decreases and then increases with both CEO ownership and charter value. These convex relations are robust to various bank risk proxies, different estimation approaches to account for endogeneity and several bank specific control variables.
Keyword Bank risk-taking
Managerial incentives
Market power
CEO ownership
Q-Index Code E1
Q-Index Status Provisional Code
Institutional Status Unknown
Additional Notes Paper # 206

Document type: Conference Paper
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Created: Wed, 02 Feb 2011, 14:15:17 EST by Karen Morgan on behalf of UQ Business School