Executive Compensation Restrictions: Do they Restrict Firms’ Willingness to Participate in TARP?

Cadman, B., Carter, M. E. and Lynch, L. J. (2012), Executive Compensation Restrictions: Do They Restrict Firms’ Willingness to Participate in TARP?. Journal of Business Finance & Accounting, Forthcoming

Posted: 19 May 2010 Last revised: 23 Oct 2012

See all articles by Brian D. Cadman

Brian D. Cadman

University of Utah - David Eccles School of Business

Mary Ellen Carter

Boston College - Department of Accounting

Luann J. Lynch

University of Virginia - Darden School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: July 15, 2012

Abstract

We examine the implications of regulatory intervention in pay-setting, by studying whether executive compensation restrictions associated with the Troubled Asset Relief Program (TARP) influence banks’ participation in the program. We find that banks more likely to be impacted by the restrictions are less likely to participate in TARP. Among banks accepting funds, we find that the likelihood of repaying before the end of 2009 is positively related to CEO incentive compensation. We find greater subsequent executive turnover and lower pay increases in banks accepting funds, consistent with concerns about talent drain. We also find that proxies for self-serving behavior are related to declining funds, suggesting pay preservation as a potential motive. Despite the motives behind declining funding, we find no evidence that the restrictions limited the objectives of TARP based on banks’ financial health or lending and may have allowed the government to allocate funds more effectively.

Keywords: Troubled Asset Relief Program (TARP), financial institutions, executive compensation

JEL Classification: G21, G28, G32, G34, G38, J33

Suggested Citation

Cadman, Brian D. and Carter, Mary Ellen and Lynch, Luann J., Executive Compensation Restrictions: Do they Restrict Firms’ Willingness to Participate in TARP? (July 15, 2012). Cadman, B., Carter, M. E. and Lynch, L. J. (2012), Executive Compensation Restrictions: Do They Restrict Firms’ Willingness to Participate in TARP?. Journal of Business Finance & Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1611732 or http://dx.doi.org/10.2139/ssrn.1611732

Brian D. Cadman (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 Campus Center Drive
Salt Lake City, UT 84112
United States
801-585-9517 (Phone)

HOME PAGE: http://www.business.utah.edu/bio/briancadman

Mary Ellen Carter

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Luann J. Lynch

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4721 (Phone)
434-243-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lynch.htm

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