Title

Managerial incentives, market power and bank risk taking

Date of this Version

4-9-2010

Document Type

Conference Paper

Publication Details

Interim status: Citation only.

Haq, M., Pathan, S., & Williams, B. (2010). Managerial incentives, market power and bank risk taking. Paper presented at the Finance and corporate governance conference 2010, Melbourne, Australia.

Access the paper on the publisher's website.

© Copyright Mamiza Haq, Shams Pathan & Barry Williams, 2010

Subsequently presented as:
Haq, M., Pathan, S., & Williams, B. (2010). Managerial incentives, market power and bank risk taking. Paper presented at the 2010 AFAANZ conference, Christchurch, New Zealand.

2010 HERDC submission. FoR Code: 150200

Abstract

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‐shaped 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.

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