Bank CEO risk-taking incentives and bank lending quality

Rui Xiang Zhai, Po Hsin Ho, Chih Yung Lin, Tran Thi Thuy Linh

Research output: Contribution to journalArticlepeer-review

2 Scopus citations


We investigate how bank CEO risk-taking incentives (Vega) influence lending decisions. We find that Vega is negatively related to the cumulative abnormal returns around loan announcements for banks. Our evidence shows that banks with high Vega charge a significantly lower loan spread, demand fewer loan covenants, and have a lower probability of requesting collateral. The results become weaker when banks have strong corporate governance mechanisms. We conduct a difference-in-differences analysis of banks who receive troubled asset relief program (TARP) funding that puts pressure on banks to reduce their option. We find that the Vega effect significantly declines after TARP.

Original languageEnglish
Pages (from-to)949-981
Number of pages33
JournalReview of Quantitative Finance and Accounting
Issue number3
StatePublished - Apr 2023


  • Bank loan contracts
  • CEO risk-taking incentives
  • Corporate governance
  • Cumulative abnormal returns
  • Lending quality


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