CEO pay gap, gender and bank risk taking

This thesis investigates the effect of the CEO pay gap on the risk of US bank holding companies. Using a sample of 189 US banks over the period 1992-2014, this study finds that the pay gap is associated with lower bank risk in the following year. These findings are consistent with the CEO power hypothesis, which argues that CEOs reduce the risk of the bank to protect their human capital and financial wealth invested in the bank. The pay gap is also associated with lesser investment in risky business policies and a greater reliance on safer sources of financing. These results are mostly robust to alternate model specifications and methods to address the endogenous relationship between risk and the pay gap. Three methods are used to address endogeneity; instrumental variable two stage least squares method, a quasi-natural experiment and propensity score matching. This thesis also empirically tests whether the relationship between the pay gap and bank risk taking is moderated by the gender of the CEO. The results demonstrate no significant difference in banks with a female CEO from banks run by a male CEO. These results contrast observed population effects that find females to be more risk averse than males. Finally, this paper extends the risk culture hypothesis, which argues there is a persistency in a bank’s risk culture that makes it more or less sensitive to a financial crisis. The results of this study indicate that whilst the performance of banks may be related across crises, the relationship does not extend to the risk taking of banks between one crises and another