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Is Capping Executive Bonuses Useful?

Asai, Kentaro

Description

This paper develops a theoretical framework to study the impact of bonus caps on banks’ risk taking. In the model, labor market price adjustments can offset the direct effects of bonus caps. The calibrated model suggests that bonus caps are only effective when bank executives’ mobility is restricted. It also suggests, irrespective of the degree of labor market mobility, bonus caps simultaneously reduce risk shifting by bank executives (too much risk taking because of limited liability), but...[Show more]

CollectionsANU Research Publications
Date published: 2016
Type: Journal article
URI: http://hdl.handle.net/1885/270231
Source: IMF Staff Papers
DOI: 10.5089/9781475543254.001
Access Rights: Free Access via publisher website

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