Does zero lower bound policy affect managerial risk-taking and executive compensation?

Abstract

This study empirically examined whether the zero lower bound policy of 2008 promotes managerial risk-taking using samples of U.S. publicly traded firms. Based on the evidence documented in previous research, this policy can lead to a change in firms’ managerial risk-taking and in turn result in a difference in executive compensation. By conducting empirical research, it was found that managerial risk taking increases significantly after the zero lower bound policy. In addition, firms’ total executive compensation also increased significantly after the zero lower bound policy. Further analysis showed that the increase in executive compensation was caused by the partial mediation of managerial risk-taking. Moreover, robustness checks showed that the relation between zero lower bound policy and managerial risk-taking is less significant for S&P 500 firms. In addition, corporate governance moderates the relation between managerial risk-taking and executive compensation.