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

CEO Incentives and Bank Liquidity Management 316 5. Conclusions and Discussions With this study, we aimed to understand whether CEO incentives affect bank liquidity management. We proposed that CEOs with better incentives to maximize shareholder wealth take risks that they view as judicious or profitable for shareholders, so their liquidity management differs from banks with poorer CEO incentives. To test these ideas, we collected data from commercial banks in the United States from the period 1992 to 2012. Data from a sample of banks within and outside the S&P 1,500 were included in our research. We hand collected data on CEO incentives by retrieving proxy statements for each bank during the sample years to maximize the sample size. Summary statistics of the research variables show that commercial banks’ CEO compensation packages did not significantly change after the 2007 financial crisis. The equity portfolio as the CEO incentive mechanism became less important with the substantial decline in stock price after the financial crisis. Meanwhile, we also observed that banks awarded more stock grants to CEOs as an incentive scheme to motivate managers after the financial crisis. We also compared whether there were differences in business activities for different types of banks, and we found that S&P 1,500 banks had a larger proportion of loan commitments, earned a larger proportion of their income from non-traditional banking activities, and also maintained higher liquidity ratios. Then, we investigated the association between CEO incentives and bank liquidity holdings. We found that CEOs equity incentives, in terms of dollar gains or percentage benefit from change in stock price, had different impacts on bank liquidity holding policy for different types of banks in the US. Specifically, S&P 1,500 banks with high CEO equity incentives usually maintained higher level of bank liquidity, but non-S&P 1,500 banks with high CEO equity incentives maintained significantly lower liquidity ratios than banks with low CEO equity incentives. We also examined whether CEO incentives affected banks’ risk-taking attitudes as reflected in the banks’ business policies, such as loan commitments, deposits, and non- interest income business activities. We found that banks offering larger CEO cash bonuses tended to make larger loan commitments, take more deposits, and operate in more non- interest earning activities than banks providing lower CEO cash bonuses. We also found that banks with different levels of CEO equity value or shares affected loan commitments, deposit-taking, and non-interest earning business activities.