Executive compensation and securitization: pre-and post-crisis
Abstract
Purpose
The purpose of this paper is to study bank executive compensation and securitization, two important strategic developments in finance that are central to the debate on the cause of the crisis.
Design/methodology/approach
We study the relationship between securitization and executive pay in a sample of US banks from 2001 to 2010, using a series of multivariate regression models to test our hypotheses.
Findings
Bank Chief Executive Officer (CEO) pay exhibits a positive pay-for-performance relationship. Since the crisis, this relationship is weakened. For banks that securitize, we find that prior to the crisis, higher securitization activity led to higher CEO compensation levels. While we do not find that securitization is related to bank CEO pay gap (the difference between CEO and the next-highest paid bank executive), we do see that bank ratings are a factor in pay gap and compensation level.
Research limitations/implications
Bank regulatory ratings influence the relationship between compensation and securitization. Also, the relationship differs pre- and post-crisis.
Originality/value
Our study is unique for several reasons. First, we look at the relationship between compensation and securitization over a time period that includes the recent financial crisis. Second, we include an analysis of pay gap. Third, we include bank regulatory ratings, which are proprietary and therefore not available for use in many banking studies.
Keywords
Acknowledgements
The views expressed in this article are our own and do not necessarily represent those of the Federal Reserve System.
Citation
Cooper, E. and Kish, A. (2014), "Executive compensation and securitization: pre-and post-crisis", Journal of Risk Finance, Vol. 15 No. 4, pp. 437-457. https://doi.org/10.1108/JRF-05-2014-0068
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited