Risk

The Uncertain Role of Banks' Corporate Governance in Systemic Risk Regulation

Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent

We present a model where firms compete for scarce managerial talent ("alpha") and managers are risk-averse. When managers cannot move across firms after being hired, employers learn about their talent, allocate them efficiently to...

Network-Sensitive Financial Regulation

Shocks that hit part of the financial system, such as the subprime mortgage market in 2007, can propagate through a complex network of interconnections among financial and non-financial institutions. As the financial crisis of...

Are CEOs paid extra for riskier pay packages?

This paper quantifies the cost of CEO incentive compensation by estimating an elasticity of pay to the variance of pay. This metric is based on the benchmark moral hazard model widely used to study CEO pay. Using US CEO compensation...

Are CEOs Born Leaders? Lessons from Traits of a Million Individuals

What makes a CEO? Our study combines a near-exhaustive sample of CEOs of Swedish companies with data on their cognitive and non-cognitive ability and height at age 18. On average, CEOs, particularly large-company CEOs, have much higher...

Mobility Restrictions and Risk-Related Agency Conflicts

Stricter enforcement of post-employment restrictions that strengthens trade secrets protection also limits CEOs’ alternative employment opportunities. We find that such mobility restrictions, which heightened CEO career...

Why Do Bank Boards Have Risk Committees?

We develop a theory of bank board risk committees. With this theory, such committees are valuable even though there is no expectation that bank risk is lower if the bank has a...

The Risks of Corporate Legal Principles of Risk Management

Competition Theory of Risk Management Failures

We study a model in which firms compete preemptively for trading opportunities and risk management introduces latency in trading. As the time pressure faced by firms is endogenous to risk management choices, strategic...

Governance of Financial Services Outsourcing: Managing Misconduct and Third-Party Risks

With financial institutions increasingly outsourcing their activities, they face a record number of fraud and misconduct cases arising from third-party services. We survey financial institutions to better understand which...

How Important is Moral Hazard for Distressed Banks?

The moral hazard incentives of the bank safety net predict that distressed banks take on more risk and higher leverage. Since many factors reduce these incentives, including charter value, regulation, and managerial incentives, the...

Governance, Risk Management, and Risk-Taking in Banks

This paper examines how governance and risk management affect risk-taking in banks. It distinguishes between good risks, which are risks that have an ex ante private reward for the bank on a stand-alone basis, and bad risks, which do not...