2023-07-04

My paper “Pay for Prudence” with Yadav Gopalan, John Donovan, and Salman Arif is now available online at the Journal of Accounting and Economics.

I’m particularly happy about this project because it stems from a conversation that Yadav and I had at a conference while we were on the job market. We chatted about our dissertations and we realized that out job market papers–his on regulatory ratings and mine on incentives for risk taking–had interesting tension. So we started kicking ideas around and realized that for all the debate about how regulatory priorities (the ‘prudence’ in the title) should be incorporated into bankers’ pay no one had taken the time to actually look at the contracts to see whether banks were already doing this!

So we put together a “prudence” lexicon based on bank examiners’ manuals and put together a script to look at all of the Proxies on EDGAR to see what we could see. I was working in Shanghai at the time, so I set up a server in a Salt Lake City closet to avoid the intercontinental latency (NYU-Shanghai has an approved VPN, but this sort of thing takes it to the limit). The first set of results made it clear that we were on to something, so we invited John Donovan and Salman Arif to join the project and got down to business! And by business I mean reading hundreds of these contracts so that we could really understand what was going on. The details are in the paper, and rather timely!