lower the default risk of a bank. However, we find no evidence of cash bonuses exerting a risk-reducing effect when banks … are financially distressed or when banks operate under weak bank regulatory regimes. Our results link bonus compensation …

bank CEOs. For a panel of US and European banks, we employ the Merton distance to default model to estimate how bonus … payments and option holdings impact the level of bank default risk targeted by CEOs. We find that CEO cash bonuses reduce …

) suggesting that perverted incentives from variable pay packages encourage powerful bank managers to excessive risk-taking acting …-based and variable equity-based compensation are negatively associated with bank risk as measured by the z-score's distance to … default. In contrast and as expected, we do not find any evidence for an impact of fixed CEO compensation on bank soundness …

-term incentive plans that are closely linked to bank performance would lead to less risk-taking. Using a novel database on executive …