Avgouleas, E. and Cullen, J. (2015) Excessive Leverage and Bankers’ Pay: Governance and Financial Stability Costs of a Symbiotic Relationship. The Columbia Journal of European Law, 21 (1). ISSN 1076-6715
Abstract
Debt has traditionally been viewed as an effective corporate governance tool. On the other hand, high leverage levels can lead to rapid expansion of the size of bank assets maximizing, in the short-to-medium term, banks return on equity. In the absence of regulatory controls on leverage, all it takes to assume excessive risks, even for benign bankers, is to imitate competitor business strategies. This form of herding can be motivated by compensation considerations or by career concerns. However, while bankers’ compensation has been a major factor behind bank short-termism, excessive leverage creates serious governance/agency costs even in the absence of compensation incentives. Therefore, a reasonably protective leverage ratio can prove an effective measure in containing rent seeking and smoothing up the leverage cycle to improve bank governance, prevent deep recessions, and safeguard financial stability.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > School of Law (Sheffield) |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 15 Dec 2015 16:20 |
Last Modified: | 15 Dec 2015 16:20 |
Published Version: | http://cjel.law.columbia.edu/ |
Status: | Published |
Publisher: | Transnational Juris Publications |
Refereed: | Yes |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:89102 |