Skip navigation
Skip navigation

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]

dc.contributor.authorAsai, Kentaro
dc.date.accessioned2022-08-05T03:36:40Z
dc.identifier.isbn9781475543254
dc.identifier.issn1018-5941
dc.identifier.urihttp://hdl.handle.net/1885/270231
dc.description.abstractThis 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 aggravate underinvestment (bank executives foregoing risky but productive projects). Hence, the welfare effects of bonus caps critically depend on initial conditions, including the relative importance of risk shifting versus underinvestment.
dc.format.mimetypeapplication/pdf
dc.language.isoen_AU
dc.publisherInternational Monetary Fund
dc.rights© 2016 International Monetary Fund
dc.sourceIMF Staff Papers
dc.source.urihttps://www.imf.org/en/Publications/WP/Issues/2016/12/31/Is-Capping-Executive-Bonuses-Useful-44316
dc.subjectexecutive compensation
dc.subjectrisk taking
dc.subjectrisk shifting
dc.subjectunderinvestment
dc.titleIs Capping Executive Bonuses Useful?
dc.typeJournal article
local.description.notesImported from ARIES
local.identifier.citationvolume16
dc.date.issued2016
local.identifier.absfor350204 - Financial institutions (incl. banking)
local.identifier.ariespublicationu1027566xPUB41
local.publisher.urlhttps://www.imf.org/
local.type.statusPublished Version
local.contributor.affiliationAsai, Kentaro, College of Business and Economics, ANU
local.description.embargo2099-12-31
local.bibliographicCitation.issue196
local.bibliographicCitation.startpage1
local.bibliographicCitation.lastpage37
local.identifier.doi10.5089/9781475543254.001
dc.date.updated2021-08-01T08:26:41Z
dcterms.accessRightsFree Access via publisher website
CollectionsANU Research Publications

Download

File Description SizeFormat Image
Is Capping Executive Bonuses Useful.pdf725.12 kBAdobe PDF    Request a copy


Items in Open Research are protected by copyright, with all rights reserved, unless otherwise indicated.

Updated:  19 May 2020/ Responsible Officer:  University Librarian/ Page Contact:  Library Systems & Web Coordinator