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

CEO Incentives and Bank Liquidity Management 304 Table 10 reports the aggregate effects of different CEO incentive measures on bank liquidity holdings. The previous analyses found that the effect of CEO incentives on bank liquidity holdings did not share the same direction. In order to minimize the possibility of offsetting the impact of CEO incentives on bank liquidity holdings, we jointly considered the variables that had the same directional effect on bank liquidity and ran multiple regressions. The results (see Table 10) indicate that CEO equity share significantly and positively affected the level of liquidity holdings. The linkage was particular significant prior to the financial crisis. Subsample analysis showed that the effect was mainly on the S&P 1,500 banks. Banks with CEOs that had higher equity risk exposures to changes in stock price were observed to hold significantly higher liquidity holdings than banks with CEOs that had lower equity risk exposures after the financial crisis. This relationship was not clear before the financial crisis, indicating that CEOs became more sensitive and conservative about bank liquidity policies after the financial crisis when their equity portfolio value was more sensitive to changes in stock volatility. We also found that the significant relationship between the bank liquidity and CEO equity risk exposures mainly existed in S&P 1,500 banks. The results shown Tables 9 and 10 confirm that CEO incentives generally had significant impacts on bank liquidity holding policies. Among the measures of CEO incentives, CEO equity ownership had a significantly positive impact on the level of liquidity holding. This effect existed only in S&P 1,500 banks. When CEOs of those banks had higher levels of equity risk exposure, they tended to have their banks reserve more liquidity. This tendency was again significant for the S&P 1,500 banks. Combining the results of Tables 4 to 8, we can conclude that banks with different levels of CEO incentives tended to select different types of business policies for the bank, affecting the liquidity holdings and bank performance. Specifically, we found that S&P 1,500 banks that had higher CEO incentives usually took lower proportions of loan commitments, were less involved in non-interest income business activities, but maintained higher levels of liquidity. They also had better performance compared to S&P 1,500 banks managed by CEOs receiving lower incentives.