Publication:
Compensation contracts and fire sales

Simple item page
dc.contributor.authorGete, Pedro
dc.contributor.authorGómez, Juan Pedro
dc.contributor.funderMinisterio de Economía y Competitividad
dc.contributor.rorhttps://ror.org/02jjdwm75
dc.date.accessioned2024-11-07T12:39:04Z
dc.date.available2024-11-07T12:39:04Z
dc.date.issued2015-06
dc.description.abstractThis 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.
dc.description.peerreviewedyes
dc.description.statusPublished
dc.formatapplication/pdf
dc.identifier.citationPedro Gete, Juan-Pedro Gómez, Compensation contracts and fire sales, Journal of Financial Stability, Volume 18, 2015, Pages 154-171, ISSN 1572-3089. https://doi.org/10.1016/j.jfs.2015.04.002
dc.identifier.doihttps://doi.org/10.1016/j.jfs.2015.04.002
dc.identifier.issn1878-0962
dc.identifier.officialurlhttps://www.sciencedirect.com/journal/journal-of-financial-stability
dc.identifier.urihttps://hdl.handle.net/20.500.14417/3313
dc.journal.titleJournal of Financial Stability
dc.language.isoen
dc.page.final171
dc.page.initial154
dc.page.total17
dc.publisherElsevier
dc.relation.departmentFinance
dc.relation.entityIE University
dc.relation.schoolIE Business School
dc.rightsAttribution-NoDerivatives 4.0 International
dc.rights.accessRightsinfo:eu-repo/semantics/openAccess
dc.rights.urihttps://creativecommons.org/licenses/by-nd/4.0/deed.en
dc.subject.keywordExecutive Compensation
dc.subject.keywordBail-in Bonds
dc.subject.keywordDeferred Equity
dc.subject.keywordFire Sales
dc.titleCompensation contracts and fire sales
dc.typeinfo:eu-repo/semantics/article
dc.version.typeinfo:eu-repo/semantics/acceptedVersion
dc.volume.number18
dspace.entity.typePublication
relation.isAuthorOfPublication627e06b8-d61f-4611-96fe-15cf32670e9f
relation.isAuthorOfPublication4c2d4d21-bbf8-4935-96bc-6475146ceea7
relation.isAuthorOfPublication.latestForDiscovery627e06b8-d61f-4611-96fe-15cf32670e9f
Files
Original bundle
Now showing 1 - 1 of 1
Thumbnail Image
Name:
Compensation contracts and fire sales.pdf
Size:
352.51 KB
Format:
Adobe Portable Document Format
Download
License bundle
Now showing 1 - 1 of 1
No Thumbnail Available
Name:
license.txt
Size:
2.83 KB
Format:
Item-specific license agreed to upon submission
Description:
Download
Collections
Research Articles