The impact of bank merger growth on CEO compensation

Zhian Chen, Wing Yee Hung, Donghui Li, Lu Xing

Research output: Contribution to journalArticlepeer-review

12 Citations (SciVal)

Abstract

We examine the impact of bank mergers on chief executive officer (CEO) compensation during the period 1992–2014, a period characterised by significant banking consolidation. We show that CEO compensation is positively related to both merger growth and non-merger internal growth, with the former relationship being higher in magnitude. While CEO pay–risk sensitivity is not significantly related to merger growth, CEO pay–performance sensitivity is negatively and significantly related to merger growth. Collectively, our results suggest that, through bank mergers, CEOs can earn higher compensation and decouple personal wealth from bank performance. Furthermore, we document a more severe agency problem in CEO compensation as a consequence of bank mergers relative to mergers in industrial firms. Finally, we find that the post-financial crisis regulatory reform of executive compensation in banks has limited effectiveness in curbing the merger–pay links.

Original languageEnglish
Pages (from-to)1398-1442
Number of pages45
JournalJournal of Business Finance and Accounting
Volume44
Issue number9-10
DOIs
Publication statusPublished - 1 Oct 2017

Bibliographical note

Funding Information:
Li acknowledges financial support from the National Natural Science Foundation of China (Grant No. 71362013) and Jinan University.

Publisher Copyright:
© 2017 John Wiley & Sons Ltd

Keywords

  • bank mergers
  • CEO compensation
  • financial crisis
  • incentives

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Finance

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