Many believe that compensation, misaligned from shareholders' value due to managerial entrenchment, caused financial firms to take creative risks before the Financial Crisis of 2008. We argue instead that even in a classical principal-agent setting without entrenchment and with exogenous...

We study asset and debt characteristics of US banks. We show that financial institutions, especially large institutions, are not just about holding assets that can be directly pledged and "pawned." Services and going-concern values are important, and capital market debt against going-concern...

We study asset and debt characteristics of US bank holding companies. We show that financial institutions, especially large institutions, are not just about holding discrete assets. Services and going-concern values are important, and capital market debt against going-concern values accounts for...

We study the relationship between compensation and risk-taking among finance firms using a neglected insight from principal-agent contracting with hidden action and risk-averse agents. If the sensitivity of pay to stock price or slope does not vary with stock price volatility, then total...