Date

Spring 2017

Document Type

Honors Project

Department

Finance

First Advisor

Elizabeth Cooper

Second Advisor

Vincent Kling

Abstract

Certain CEO compensation tactics have promoted excessive risk taking at banks in previous years. In response, regulation regarding compensation structure was released by the US government. In addition, regulation regarding capital risk was published by the US government in the years following the Panic of 2008. CEO compensation consists of both cash-based and incentive based forms of compensation. Risk can be measured using various methods, but for the purposes of this paper risk was measured by observing capital ratios at US banks. I evaluate the interaction between CEO compensation structure and capital ratios at US banks in an attempt to establish a relationship between the two variables. Based on previous studies, incentive based forms of compensation increase risk taking at US banks. I examine the forty-three largest US banks throughout this paper. CEO compensation variable measurements are found using the Execucomp database, while capital ratios are found by using call reports from these banks. No p-values were low enough to conclude a relationship between variables. I find that no statistically significant relationship exists between certain CEO compensation tactics and capital ratios at the forty-three largest banks in the US.

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