An accounting study of performance and risk for financial firms during the credit crisis

This dissertation provides some insights into explaining differential performance among financial firms during the 2005-2007 credit crisis by exploring two risk related firm characteristics. The first essay studies stock incentives of CEOs and directors of financial firms and explores how this affects the firms' performance. Moral hazard theory suggests that stock incentives may motivate a manager to take on more risk as options are more valuable the riskier a firm is. Contracting theory suggests that stock incentives may motivate managers to take a long run performance enhancing actions. The dissertation explores differences in stock incentives and performance during the credit crisis to discriminate between the theories. The second essay looks at management accounting system risk factor analysis and the fit with the firm's level of centralized structure. Prior research has demonstrated that performance depends on the complementarities between management accounting system and the level of decentralization. The fit between management accounting system and firm structure will affect a firm's ability to handle risk and therefore affect performance. The following two sections outline the two separate essays.