The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Mon, 07 Sep 2026 11:30:09 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.10 https://corpgov.law.harvard.edu/wp-content/uploads/2024/02/cropped-photography-4-e1706898544564-1-32x32.png The (Agency) Problem of Risk Incentives within Financial Institutions – The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu 32 32 The (Agency) Problem of Risk Incentives within Financial Institutions https://corpgov.law.harvard.edu/2010/11/24/incentives-financial-policy-and-downside-risk/?utm_source=rss&utm_medium=rss&utm_campaign=incentives-financial-policy-and-downside-risk https://corpgov.law.harvard.edu/2010/11/24/incentives-financial-policy-and-downside-risk/#comments Wed, 24 Nov 2010 14:05:47 +0000 http://blogs.law.harvard.edu/corpgov/?p=13970?d=20150106101749EST Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday, November 24, 2010
Editor's Note:

The following post comes to us from Sjoerd van Bekkum of the Finance Department at New York University and the Erasmus School of Economics at Erasmus University.

In the paper, Downside Risk and Agency Problems in the U.S. Financial Sector: Examining the Effect of Risk Incentives from 2007 to 2010, I consider risk incentives within financial institutions in the presence of two types of potential agency problems: the standard manager-shareholder agency problem and the risk-shifting problem between shareholders and society. First, I evaluate the effect of risk incentives on shareholder returns during the financial crisis. Next, I examine the relation between risk incentives and three downside risk statistics. Value-at-risk resembles a financial institution’s tolerance to losses, expected shortfall resembles losses when the firm does poorly, and marginal expected shortfall resembles an institution’s exposure to loss spillovers from its peers.

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