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

CEO Incentives and Bank Liquidity Management 292 Combining the results from Tables 5 to 7, we found that CEO incentives from different perspectives affected banks’ liquidity and business policies. 10 Specifically, banks offering their CEOs larger cash bonuses tended to make larger loan commitments, take more deposits, and conduct more non-interest earning business activities than banks that offered lower CEO cash bonuses. Corresponding business policies meant that banks tended to maintain higher liquidity ratios (see Table 4). This linkage was particularly significant before the financial crisis. CEO equity incentive was another important factor influencing bank business policies and liquidity holdings. Banks with different levels of CEO equity value or shares affected loan commitments, deposit-taking, and non-interest earning business activities. 11 Because the value effect or shareholding effect of those business policies were not in the same direction (see Tables 5 to 7), this might be the cause of the insignificant association between CEO equity incentives and liquidity holdings of the sample banks. 4.2.4 CEO Incentives and Bank Performance We also investigated whether different CEO incentives were associated with bank performance because banks with different CEO incentives conducted different business activities, as reported in Tables 5 to 7. If the level of CEO incentives results in banks choosing different types of business activities, we would expect that bank performance would also be affected. We computed the return on assets and return on equity for each bank to proxy bank performance. The results are shown in Panels A and B of Table 8. Panel A indicates that both S&P 1,500 banks and non-S&P 1,500 banks usually had higher ROA performance if their CEOs had relatively higher cash bonuses, equity incentives, or CEO equity risk exposures. The results from Panel B are quite consistent with those 10 To save the space, we do not report the multivariate regression results between CEO incentives and different bank business policies. The results are qualitatively consistent with Tables 5 to 7 and available upon request. In addition, we also conduct 2SLS analyses to examine the relation between CEO incentives and bank business policies and bank liquidity. The results, although not reported, generally show that the higher CEO incentives tend to keep higher level of liquidity ratio as they receive higher deposits, make higher loan commitment, and noninterest income. This relation is more significantly in S&P1,500 banks, but weak in non S&P 1,500 banks. The overall results are consistent with the main results of the text. 11 We appreciate that anonymous reviewer raises the possibility about the simultaneous decision among CEO incentives, bank business policies, and liquidity policy. We conduct the simultaneous regression among these three factors and results are still hold. To save the space, we do not report the results but available upon request.