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CEO Pay Gaps and Bank Risk-Taking

Lookup NU author(s): Dr Shams PathanORCiD

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Abstract

© 2022 European Accounting Association. Bank executives’ substantial compensation is seen as one of the factors that contributed to the risk-taking that led to the 2008–2009 financial crisis. We test whether and how pay disparities between CEO and non-CEO executives—the so-called CEO pay gap—influences risk-taking at publicly traded commercial banks in the U.S. We find strong evidence that larger CEO pay gaps are associated with lower risk levels, improved financial performance, and greater information transparency. Our findings are unique to banks and are consistent with the CEO power proposition. We corroborate this proposition by linking larger pay gaps to increased CEO power and low CEO turnover-performance sensitivity. Our results imply that placing absolute limits on bank CEO pay would likely result in increased bank risk-taking.

Publication metadata

Author(s): Pathan S, Haq M, Morgan J

Publication type: Article

Publication status: Published

Journal: European Accounting Review

Year: 2023

Volume: 32

Issue: 4

Pages: 935-964

Online publication date: 20/04/2022

Acceptance date: 01/02/2022

ISSN (print): 0963-8180

ISSN (electronic): 1468-4497

Publisher: Routledge

URL: https://doi.org/10.1080/09638180.2022.2043761

DOI: 10.1080/09638180.2022.2043761

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