[article] 
in Les cahiers de l'IFID > 2 [01/04/2021] . - 19 p.

Titre :	Cash-Based Compensation and Systemic Risk : Evidence from the Tunisian Banking Sector
Type de document :	texte imprimé
Auteurs :	Imen Fredj, Auteur
Année de publication :	2021
Article en page(s) :	19 p.
Langues :	Anglais
Mots-clés :	systemic risk, executive compensation, bank-risk taking
Résumé :	Weak and ineffective bank governance mechanisms are identified as the main triggers of a financial crisis. One of the main issues raised by researchers is the role of executive compensation in encouraging risk-taking. We conduct this research to determine whether executive compensation is an incentive for risk-taking and contributes to the overall systemic risk. Based on the agency theory and the moral hazard hypothesis, compensation is assumed to be an incentive for interest alignment. Our results show that managers are more willing to take risks that may increase systemic risk levels. In doing so, we have used the total compensation of bank managers and three measures of systemic risk (MES, LRMES, and SRISK) to gauge the contribution of Tunisian banks to systemic risk. Our sample includes 10 large Tunisian listed banks over the period 2009-2019. Indeed, a positive and significant relationship between compensation and systemic risk suggests that bank managing directors are more willing to take risks. It is worth saying that efforts are still needed to improve governance practices and to promote banking transparency to ensure the soundness of the banking sector.

[article] Cash-Based Compensation and Systemic Risk : Evidence from the Tunisian Banking Sector [texte imprimé] / Imen Fredj, Auteur . - 2021 . - 19 p.
Langues : Anglais
in Les cahiers de l'IFID > 2 [01/04/2021] . - 19 p.

Mots-clés :

systemic risk, executive compensation, bank-risk taking

Résumé :

Weak and ineffective bank governance mechanisms are identified as the main triggers of a financial crisis. One of the main issues raised by researchers is the role of executive compensation in encouraging risk-taking. We conduct this research to determine whether executive compensation is an incentive for risk-taking and contributes to the overall systemic risk. Based on the agency theory and the moral hazard hypothesis, compensation is assumed to be an incentive for interest alignment. Our results show that managers are more willing to take risks that may increase systemic risk levels. In doing so, we have used the total compensation of bank managers and three measures of systemic risk (MES, LRMES, and SRISK) to gauge the contribution of Tunisian banks to systemic risk. Our sample includes 10 large Tunisian listed banks over the period 2009-2019. Indeed, a positive and significant relationship between compensation and systemic risk suggests that bank managing directors are more willing to take risks. It is worth saying that efforts are still needed to improve governance practices and to promote banking transparency to ensure the soundness of the banking sector.