Date of Award

Fall 12-18-2019

Author's School

Olin Business School


Olin Business School, Doctor of Business Administration in Finance.

Degree Name

Doctor of Business

Degree Type



The 2007 financial crisis revealed how excessive bank risk threatens financial system stability. This paper studies two aspects of the risk-taking incentives of banks– CEO compensation and capital. The vega of a bank executive’s equity compensation measures how compensation changes relative to the banks’ stock volatility. If CEO compensation vega is high, I expect the CEO to take more risk in areas where he exercises control. Conversely, if regulators demand that banks invest their own capital to encourage conservative behavior, then I expect risk-taking to be lower. This paper confirms that higher vega and lower capital ratios are associated with more real estate lending by bank holding companies in the U.S. between 2000 and 2014. The negative relation between capital ratios and real estate lending exists in almost all subsamples. However, the positive relation between vega and real estate lending is only significant among small well-capitalized banks, and after the financial crisis.

Chair and Committee

Anjan Thakor (Chair) - Asaf Manela - Taylor Begley