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- Title
Regulatory Constraints on Performance-Based Managerial Compensation, Bank Monitoring, and Aggregate Loan Quality.
- Authors
VanHoose, David
- Abstract
This paper evaluates the effects of binding regulatory restraints on the rate of performance-based management compensation within a banking framework in which a primary function of bank management teams is to monitor loans in order to eliminate deadweight default losses. Available management teams are endowed with heterogeneous levels of monitoring efficiencies, and obtaining services from more efficient monitoring teams requires payment of higher rates of performance-based compensation. In equilibrium, a fraction of banks choose to employ management teams that monitor. With or without binding capital requirements, imposing binding restraints on the allowed rate of performance-based compensation results either in lower bank efficiency or in a reduced fraction of monitoring banks and, hence, lower aggregate loan quality.
- Subjects
BANK management -- Employee participation; COMPENSATION management; TEAMS in the workplace; BANK loans; ECONOMIC equilibrium; CAPITAL requirements
- Publication
Atlantic Economic Journal, 2011, Vol 39, Issue 4, p315
- ISSN
0197-4254
- Publication type
Article
- DOI
10.1007/s11293-011-9290-2