Leverage, bank employee compensation and institutions

Bertay, Ata Can and Uras, Burak R. (2020) Leverage, bank employee compensation and institutions. Journal of Banking and Finance, 111 . ISSN 0378-4266 (Print) 1872-6372 (Online)

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This paper investigates the empirical relationship between financial structure and employee compensation in the banking industry. Using an international panel of banks, we show that well-capitalized banks pay higher wages to their employees. Our results are robust to changes in measurement, model specification and estimation methods. In order to account for the positive association between bank capital and employee compensation, we illustrate a stylized 3-period model and show that well-capitalized banks have incentives to pay higher wages to induce monitoring. Such monitoring rents of employees at capitalized banks are expected to be higher in societies with weak institutions. Further empirical analysis shows that the weaker is institutional quality of a country the stronger is the positive relationship between bank capital and wages - supporting our theoretical conjectures.
Item Type: Article
Uncontrolled Keywords: Bank financial structure; Human capital; Wage determination
Divisions: Sabancı Business School
Depositing User: Ata Can Bertay
Date Deposited: 30 Jul 2023 17:04
Last Modified: 30 Jul 2023 17:04
URI: https://research.sabanciuniv.edu/id/eprint/46542

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