24.06.2022

New publication in The Review of Financial Studies

Tübingen economist Patrick Kampkötter (Managerial Accounting) has published a paper on "Bank Bonus Pay as a Risk Sharing Contract" in the journal The Review of Financial Studies together with Matthias Efing (HEC Paris) and Harald Hau and Jean-Charles Rochet (both University of Geneva and Swiss Finance Institute). This journal is one of the top international journals in finance (A+).

The research project highlights an additional function of bonus payments, namely risk sharing. In the presence of financial constraints that make external corporate financing costly, the optimal contract between shareholders and employees involves some degree of risk sharing, with bonus payments partially absorbing negative earnings shocks. Using wage data for 1.26 million employee-years across all functional areas of Austrian, German, and Swiss banks, Patrick Kampkötter and coauthors uncover several empirical patterns in bonus compensation that are difficult to justify with incentive theories of bonus compensation alone, pointing to the special role of risk sharing.

The article can be downloaded here.