Year: 2012
Type: article
Abstract: We analyze the interaction between financial institutions’ internal compensation policy, the quality of loans, and their securitization decision. We show when mandatory deferred bonus pay makes incentives more commensurate with the longer term risk of their transactions and hence improves the quality of loans. We also show when it has the opposite effect. We further analyze when mandatory deferred compensation can complement a policy that requires financial institutions to retain a minimum exposure to their originated loans, and we discuss the impact of a tax on short-term bonus pay. Generally, our framework allows us to study the interaction of financial institutions’ internal agency problems with the external agency problem that arises from securitization.
Source: European Finance Review
DOI: 10.1093/rof/rfs032
Authors: Roman Inderst, Sebastian Pfeil
Institutions: Goethe University Frankfurt, Imperial College London
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W3122985998