Skip to main content

Research Repository

Advanced Search

Bankers’ stock options, risk-taking and the financial crisis

Minhat, Marizah; Abdullah, Mazni

Authors

Marizah Minhat

Mazni Abdullah



Abstract

This study investigates the relationship between the use of stock options and bank risk in the context of the 2007-2008 financial crisis for banks that are authorised to accept deposits in the United Kingdom. These banks are affected by the European regulation on variable pay, but, to our knowledge, their usage of stock options has not been examined in previous studies. Paying bankers with stock options can generate two types of managerial incentives, namely, incentives to improve performance and incentives to take risk. Controlling for incentives to improve performance, we find that banks’ total risk and insolvency risk increase with the risk-taking incentives induced by stock options. We also find that this relationship is more pronounced surrounding the crisis period. The findings of this study can serve as institutionally relevant empirical support for the European regulation on variable pay.

Journal Article Type Article
Acceptance Date Jan 13, 2016
Online Publication Date Jan 22, 2016
Publication Date 2016-02
Deposit Date Jan 19, 2016
Publicly Available Date Jul 23, 2017
Journal Journal of Financial Stability
Print ISSN 1572-3089
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 22
Pages 121-128
DOI https://doi.org/10.1016/j.jfs.2016.01.008
Keywords Executive Pay; Stock Options; Vega; Bank Risk-taking; Financial Crisis
Public URL http://researchrepository.napier.ac.uk/id/eprint/9451
Contract Date Jan 19, 2016

Files









Downloadable Citations