The impact of bank merger growth on CEO compensation

Chen, Z., Hung, W.-Y., Li, D. and Xing, L. (2017) The impact of bank merger growth on CEO compensation. Journal of Business Finance and Accounting, 44(9-10), pp. 1398-1442. (doi: 10.1111/jbfa.12263)

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.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Xing, Dr Lu
• Authors: Chen, Z., Hung, W.-Y., Li, D., and Xing, L.
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: Journal of Business Finance and Accounting
• Publisher: Wiley
• ISSN: 0306-686X
• ISSN (Online): 1468-5957
• Published Online: 06 July 2017
• Copyright Holders: Copyright © 2017 John Wiley and Sons Ltd
• First Published: First published in Journal of Business Finance and Accounting 44(9-10): 1398-1442
• Publisher Policy: Reproduced in accordance with the publisher copyright policy