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Better safe than sorry? CEO inside debt and risk-taking in bank acquisitions

Srivastav, Abhishek, Armitage, Seth, Hagendorff, Jens, King, Tim (2018) Better safe than sorry? CEO inside debt and risk-taking in bank acquisitions. Journal of Financial Stability, 36 . 208 - 224. ISSN 1572-3089. (doi:10.1016/j.jfs.2018.04.005) (KAR id:67667)

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Official URL:
https://dx.doi.org/10.1016/j.jfs.2018.04.005

Abstract

Widespread bank losses during the financial crisis have raised concerns that equity-based compensation for bank CEOs causes excessive risk-taking. Debt-based compensation, so-called inside debt, aligns the interests of CEOs with those of external creditors. We examine whether inside debt induces CEOs to pursue less risky acquisitions. Consistent with this, we show that acquisitions announced by CEOs with high inside debt incentives are associated with a wealth transfer from equity to debt holders. After the completion of a deal, banks where acquiring CEOs have high inside debt incentives display lower market measures of risk and lower loss exposures for taxpayers.

Item Type: Article
DOI/Identification number: 10.1016/j.jfs.2018.04.005
Uncontrolled keywords: Banks, Inside debt, CEO incentives, Mergers and acquisitions, cequfin
Subjects: H Social Sciences
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Depositing User: Tracey Pemble
Date Deposited: 19 Jul 2018 11:18 UTC
Last Modified: 07 Oct 2021 08:49 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/67667 (The current URI for this page, for reference purposes)
King, Tim: https://orcid.org/0000-0002-7326-2162
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