CEO Incentives and Bank Liquidity Management

Chen, I. J., and Li, W. C. 2019. CEO Incentives and Bank Liquidity Management. NTU Management Review, 29 (1): 255-322. https://doi.org/10.6226/NTUMR.201904_29(1).0007

I-Ju Chen, College of Management, Yuan Ze University
Wei-Chih Li, College of Management, Yuan Ze University

Abstract

We investigate the association between CEO incentives and liquidity policy of commercial banks in the United States from 1992 to 2012. Empirical analyses indicate that CEO incentives affected the liquidity holdings of commercial banks, but the effect was different for S&P 1,500 and non-S&P 1,500 banks. We found that S&P 1,500 banks with higher CEO equity ownership usually had lower proportions of loan commitments, were less involved in non-interest generating activities, but maintained higher levels of liquidity. Our study indicates that S&P 1,500 banks with different level of CEO incentives had different business policies, which affected bank liquidity holdings and bank performance, but this relation was not clear for non-S&P 1,500 banks. Our results complement current understanding of how different CEO incentives affect bank liquidity policy.  


Keywords

bank liquidityCEO incentivesbank performance


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