THE LINK BETWEEN CEO INCENTIVE STRUCTURES, MANAGERIAL POWER, AND FIRM RISK IN THE FINANCIAL SERVICES INDUSTRY: A COMPREHENSIVE ANALYSIS OF US BANKING AND INSURANCE FIRMS

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Abstract

This paper aims to comprehensive insights regarding the link between CEO characteristics and investors´ risk in the financial services industry. The paper examines the relation among CEO incentive structures, CEO duality, and several measures of stockholders´ risk for samples of US banks and insurance firms. Our results provide empirical evidence that certain CEO characteristics are significantly related to equity investors´ risk: A CEO’s pay sensitivity to annual base salary and yearly bonus payment is negatively related to firm risk. The value of a CEO’s unvested options und unvested stock is also negatively related to firm risk. CEO duality appears to be negatively related to firm risk for banks but positively related to risk for insurance firms. Our findings have implications for shareholders who are provided by an empirical framework that takes into account CEO characteristics as non-traded human resource risk factor.

Keywords: CEO Compensation, CEO Duality, Stock Return Volatility, Firm Risk, Financial Institutions

How to cite this paper: Benzing, J., & Börner, C. J. (2015). The link between CEO incentive structures, managerial power, and firm risk in the financial services industry: A comprehensive analysis of US banking and insurance firms. Corporate Ownership & Control, 12(3-3), 371-387. https://doi.org/10.22495/cocv12i3c3p8