Leverage, CEO risk-taking incentives, and bank failure during the 2007-10 financial crisis

Usual measures of the risk-taking incentives of bank CEOs do not capture the risk-shifting incentives that the exposure of a CEO's wealth to his rm's stock price (delta) creates in highly levered rms. We nd evidence consistent with the importance of these incentives for bank CEOs: In a sample of large U.S. nancial rms, a higher pre-crisis delta is associated with a signi cantly higher probability of failure during the 2007{2010 nancial crisis in highly levered rms, but not in less levered rms.The authors acknowledge the financial support of Spain’s Ministry of Science and Innovation (through research grant ECO2009-08278), Spain’s Ministry of Economy and Competitiveness (through grant ECO2012-33308), Fundación UCEIF (through a 2013 Santander Financial Institute research grant), and Madrid Autonomous Community [through grant S2015/ HUM-3353 (EARLYFIN-CM)