Using data on publicly traded U.S. bank holding companies from 1992 to 2019, we examine whether disparities between CEO and non-CEO executive pay affect banks’ liquidity creation. We find that banks with larger CEO pay gaps create more liquidity, but this positive association emerges only after the global financial crisis. A difference-in-differences analysis around the 2011 implementation of the Dodd-Frank Act corroborates these findings: the interaction between post-2011 and the pay-gap measures is positive and significant, implying that post-crisis compensation and governance reforms strengthened the incentive role of pay inequality. The effect is concentrated in on-balance-sheet liquidity creation and in banks with stronger risk-absorbing capacity, low market competition, and sound governance. Together, the results reveal a dynamic link between executive pay structure and bank behavior, suggesting that post-crisis reforms amplified the motivational channel of pay disparity while overly restrictive pay limits could unintentionally dampen banks’ liquidity-creation capacity.
Building similarity graph...
Analyzing shared references across papers
Loading...
Shams Pathan
Chen Zheng
Mamiza Haq
Journal of Financial Services Research
Newcastle University
Curtin University
City University of Macau
Building similarity graph...
Analyzing shared references across papers
Loading...
Pathan et al. (Fri,) studied this question.
www.synapsesocial.com/papers/69b5ff8d83145bc643d1c5ff — DOI: https://doi.org/10.1007/s10693-025-00460-2