Gender Diversity in Leadership on Corporate Boards and Banking Risk-Taking - Research Paper Example

The paper "Gender Diversity in Leadership on Corporate Boards and Banking Risk-Taking" is a perfect example of a research paper on finance and accounting. The research questions for this study have been used as the core basis for structuring the literature review. This shall be through the exploration of the empirical and policy-related literature that focuses on executive compensation and board affiliation as related to bank-risk taking as part of the long-term incentive plans (LTIPs). The literature review shall also entail the exploration of probable theoretical models with a view of identifying the framework within which the findings of the study will be contextualized.

The literature review shall be divided into two main parts with the first part addressing the relationship between the executive compensation with bank-risk taking while aiming at bringing out the long-term incentive plan (LTIPs). As such, this review shall present the modes by which executives’ decision-making with regards to risk-taking by banks is influenced by the executive compensation that they receive. On the second front, the review shall seek to highlight the key theme of board affiliation in terms of its relationship with bank risk-taking.

Subsequently, the review shall highlight the difference between the executive directors and non-executive directors on matters of decision-making. 2.1. Executive compensation and bank risk-taking 2.1.1. The essence of managerial incentives According to the findings on a study conducted by Bebchuk, Cohen, and Spamann (2010), it is established that managerial incentives are of great significance to an organization given that these are incentives that are generated by executive compensation programs and have great correlations with the banks’ excessive risk-taking.

The implication of this is in relation to the capital structure adopted by banks that logically requires that the banks be financed considerably with more equity as is the case currently. For instance, in the recent global financial crisis financial institutions are noted as having failed in averting the crisis as a result of operating on flawed incentives systems for the executives, as well as a result of inadequacy in their risk-monitoring systems. Therefore, there is a high likelihood that poorly-design executive compensation incentive programs, as practiced by most financial institutions, are responsible for the high or excessive risk-taking by banks (Balachandran, Kogut and Harnal 2010).