Managerial Compensation and the Market Reaction to Bank Loans

Almazan, Andres; Suarez, Javier

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Managerial Compensation and the Market Reaction to Bank Loans

43 Pages Posted: 29 Jan 2001

See all articles by Andres Almazan

Andres Almazan

University of Texas at Austin - Department of Finance

Javier Suarez

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

There are 2 versions of this paper

Date Written: December 2000

Abstract

This Paper considers why a manager would choose to submit himself to the discipline of bank monitoring. This issue is analysed within the context of a model where the manager enjoys private benefits, which can be restricted by the monitor, and is optimally compensated by shareholders. Within this setting, we find that managers will submit to monitoring when they receive favourable private information. This result is consistent with event study evidence that suggests that the market has a favourable view of financing choices that increase monitoring.

Keywords: Banks, managerial compensation, monitoring, optimal contracts

JEL Classification: G32, G34

Suggested Citation: Suggested Citation

Almazan, Andres and Suarez, Javier, Managerial Compensation and the Market Reaction to Bank Loans (December 2000). Available at SSRN: https://ssrn.com/abstract=258075