Bank CEO Incentives and the Credit Crisis

We investigate whether bank performance during the credit crisis of 2008 is related to CEOincentives and share ownership before the crisis and whether CEOs reduced their equity stakes intheir banks in anticipation of the crisis. There is no evidence that banks with CEOs whoseincentives were better aligned with the interests of their shareholders performed better during thecrisis and evidence that these banks actually performed worse both in terms of stock returns andin terms of accounting return on equity (ROE). Further, banks with higher option compensationand with a larger fraction of compensation given in the form of cash bonuses did not have worseperformance during the crisis.[...]