Paper Title
Common Committee Membership on The Relationship Between CEO Incentive Compensation and Risk-Taking: A Study of The Banking Industry

Abstract
CEO compensation practices in the banking industry are widely believed to have induced excessive risk-taking and, thus, to have played an important role in causing the recent financial crisis. The Basel Committee on Banking Supervision (BCBS) has called attention to the need to understand, and improve the corporate governance of financial organizations. The purpose of this study is to analyze whether there is a mechanism in boards that may have impacts on the relationship between CEO incentive compensation and risk-taking behavior for the banking industry. The mechanism this study proposes is the compensation/audit committee overlap (hereafter, director overlap).In this study, the results show that in the banking industry, director overlap affects the risk incentive resulting from CEO incentive compensation; director overlap can reduce the relationship between CEO incentive compensation and default risk; and director overlap reduces the relationship between CEO incentive compensation and systematic risk, instead of idiosyncratic risk. These findings indicate that director overlap between compensation committee and audit committee can help risk management by reducing risk-taking behavior inducing by CEO incentive compensation, reducing default probability inducing by CEO risk-taking behavior and systematic risk. Keywords - Compensation/Audit Committees Overlap; CEO Incentive Compensation; Risk-Taking; Banking Industry.