Incentive pay and bank risk-taking: evidence from Austrian, German, and Swiss Banks

Efing, Matthias; Hau, Harald; Kampkötter, Patrick; Steinbrecher, Johannes

doi:10.1016/j.jinteco.2014.12.006

Scientific article

English

Incentive pay and bank risk-taking: evidence from Austrian, German, and Swiss Banks

Contributors

Efing, Matthias; Hau, Harald; Kampkötter, Patrick; Steinbrecher, Johannes

Published in

Journal of international economics, vol. 96, no. 1, p. S123-S140

Publication date

2015

Abstract

We use payroll data in the Austrian, German, and Swiss banking sector to identify incentive pay in the critical banking segments of treasury/capital market management and investment banking for 67 banks. We document an economically significant correlation of incentive pay with both the level and volatility of bank trading income—particularly for the pre-crisis period 2003–2007, in which incentive pay was strongest. This result is robust if we instrument the bonus share in the capital market divisions with the strength of incentive pay in unrelated bank divisions like retail banking. Moreover, pre-crisis incentive pay appears too strong for an optimal trade-off between trading income and risk, which maximizes the net present value of trading income. Further analyses indicate that the bonus moderation during the crisis has removed excessive pre-crisis incentive pay.

UNIGE affiliation entities

Faculté d'économie et de management / Institute of Economics and Econometrics

Citation (ISO format)

EFING, Matthias et al. Incentive pay and bank risk-taking: evidence from Austrian, German, and Swiss Banks. In: Journal of international economics, 2015, vol. 96, n° 1, p. S123–S140. doi: 10.1016/j.jinteco.2014.12.006

Article (Accepted version)

Identifiers

PID : unige:45309
DOI : 10.1016/j.jinteco.2014.12.006

Additional URL for this publication

http://www.sciencedirect.com/science/article/pii/S0022199614001512

Journal ISSN

0022-1996

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15/01/2015 10:57:00

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15/01/2015 10:57:00

Update

14/03/2023 22:41:54

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14/03/2023 22:41:54

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30/10/2024 22:16:04

Incentive pay and bank risk-taking: evidence from Austrian, German, and Swiss Banks

Contributors

Published in

Publication date

Abstract

UNIGE affiliation entities

Citation (ISO format)

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Identifiers

Additional URL for this publication

Journal ISSN

Technical informations

Creation

First validation

Update

Status update

Last indexation