臺大管理論叢 NTU Management Review VOL.29 NO.1

CEO Incentives and Bank Liquidity Management 266 gauged by the ratio of cash bonus to cash salary; (2) equity incentives ($) was measured by dollar gains of CEO portfolio from 1% change in stock price; specifically, it equaled the dollar change in the executive’s stock and option portfolio value for a 1% change in the stock price; (3) equity incentive (%) was measured by percentage shares owned by CEO; (4) equity risk exposure ($) was equal to the dollar change in the CEO’s equity portfolio value for a 1% change in stock volatility; and (5) equity risk exposure (%) was defined as the percentage change in the equity portfolio value for a 1% increase in stock volatility and was calculated from all option series held by the CEO. 3.2.2 Other Variables We also considered several important variables that previous studies have shown to be influential to bank liquidity (Kashyap et al., 2002; Gatev et al., 2007; Loutskina, 2011; Berger and Bouwman, 2009; Ayuso, Pérez, and Saurina, 2004; Acharya et al., 2010). Variables included bank-level variables such as Loan Commitment, Deposit Base, Bank Capital, Share of Deposit Financing , and the market condition variable— Business Cycle . Loan Commitment was the ratio of unused loan commitments to commitments plus loans. Deposit Base was the ratio of transactions deposits to total deposits. Bank Capital ratio was total equity capital as a proportion of bank total asset. Share of Deposit Financing was the ratio of total deposits to total assets. Business Cycle was the GDP growth rate of the United States. For the performance regression, we also controlled for bank size and non-interest income ratio (Fahlenbrach and Stulz, 2011). Bank size was defined as the natural log of gross total assets, which was equal to total assets plus the allowance for loan and lease losses and the allocated transfer risk reserve. Non-interest income was the ratio of non-interest income to net income. We also divided our sample period into two sub-periods: 1992 to 2006 and 2007 to 2012. The financial crisis of 2007 resulted in the collapse of financial markets and systems. The sudden change of market conditions after 2007 increased the difficulty in raising external finance and may have altered the incentives for banks to hoard their liquidity (Acharya et al., 2010). Although the literature shows that bank securitization helps transfer illiquid loans into marketable securities and lowers the incentive for banks to maintain liquidity for unexpected demands, we did not include this factor in our regression analyses because securitization activities in the Call Report could not be matched with the Compustat Bank database. 7 The definitions for all variables are listed in the Appendix. 7 Even we tried to merge the data together, our sample size was dramatically reduced and the results lacked explanatory power.