Person:
Gete, Pedro

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Pedro
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Gete
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IE University
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IE Business School
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Finance
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2015 - 20182
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Author: Gómez, Juan Pedro ×

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Now showing 1 - 2 of 2
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    Publication
    Compensation contracts and fire sales
    (Elsevier, 2015-06) Gete, Pedro; Gómez, Juan Pedro; Ministerio de Economía y Competitividad; https://ror.org/02jjdwm75
    This paper analyzes the impact of remuneration practices on banks’ risk-taking in a model with fire sales externalities. When these externalities are not internalized by a bank's shareholders and executives, borrowing and fire sales are higher than the socially optimal level. Our analysis shows that plain-vanilla equity fails to internalize fire sales externalities. Deferred equity and long-term bonuses unrelated to short-term profits can restore social efficiency. Bail-in bonds can achieve efficiency at a smaller cost since they allow for state-contingent payments. It is not the level but the composition of variable compensation that determines the inefficiency. Excessive regulation may lead to suboptimal levels of risk-taking. Government guarantees reinforce the fire sales externalities and the need for regulation.
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    Publication
    Dealing with Overleverage: Restricting Leverage vs. Restricting Variable Compensation
    (SSRN, 2018-01-25) Gete, Pedro; Gómez, Juan Pedro; https://ror.org/02jjdwm75
    We study policies that regulate executive compensation in a model that jointly determines executives' effort, compensation and firm leverage. The market failure that justifies regulation is that executives are optimistic about asset prices in states of distress. We show that shareholders propose compensation packages that lead to socially excessive leverage. Say-on-pay regulation does not reduce the incentives for leverage. Regulating the structure of compensation (but not its level) with a cap on the ratio of variable-to-fixed pay delivers the right leverage. However, it is more efficient to directly regulate leverage because restricting the variable compensation impacts managerial effort more than if shareholders are free to design compensation subject to a leverage constraint.