This study reviews the public outcry over executive pay in the wake of the 2007 financial crisis, the Obama administration’s attempts to regulate US executives’ compensation practice, and the debates on bankers’ pay. Using a large sample, the current study examines CEO risk-taking incentives arising from equity compensation in US companies. We document a significant difference in CEO risk-taking incentives between the US financial and non-financial sectors. Our findings of excess risk-taking incentives traceable to both stock and stock option compensation in the US financial sector, may shed some light on the causes of the credit crisis and provide some thoughts on the on-going legislative and regulatory attempts in the US to discourage bank executives from taking excessive risks.
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Management
The 2007 credit crisis and CEO risk-taking incentives in the US financial sector
