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- Title
Bank CEO risk-taking incentives and bank lending quality.
- Authors
Zhai, Rui-Xiang; Ho, Po-Hsin; Lin, Chih-Yung; Linh, Tran Thi Thuy
- Abstract
We investigate how bank CEO risk-taking incentives (Vega) influence lending decisions. We find that Vega is negatively related to the cumulative abnormal returns around loan announcements for banks. Our evidence shows that banks with high Vega charge a significantly lower loan spread, demand fewer loan covenants, and have a lower probability of requesting collateral. The results become weaker when banks have strong corporate governance mechanisms. We conduct a difference-in-differences analysis of banks who receive troubled asset relief program (TARP) funding that puts pressure on banks to reduce their option. We find that the Vega effect significantly declines after TARP.
- Subjects
BANK loans; ABNORMAL returns; CHIEF executive officers; CORPORATE governance; CORPORATE banking; LOAN agreements
- Publication
Review of Quantitative Finance & Accounting, 2023, Vol 60, Issue 3, p949
- ISSN
0924-865X
- Publication type
Article
- DOI
10.1007/s11156-022-01119-y