How Does Executive Compensation Affect Bank Risk Taking: Evidence from FAS 123R by Yongqiang Chu, Tao Ma :: SSRN

We examine how executive compensation affects bank risk taking in mortgage lending using exogenous variations in stock option grants generated by the FAS 123R, which requires all firms to expense options. Using a difference-in-differences approach, we find that banks that did not expense options before FAS 123R (treated firms) significantly decreases their approval rates of…