arbiter
JournalsAccount

Pay Gap Matters: Evidence from Bank Liquidity Creation

Shams Pathan et al.

Journal of Financial Services Research2026https://doi.org/10.1007/s10693-025-00460-2article
AJG 3ABDC A
Weight
0.50

Abstract

Using data on publicly traded U.S. bank holding companies from 1992 to 2019, we examine whether disparities between CEO and non-CEO executive pay affect banks’ liquidity creation. We find that banks with larger CEO pay gaps create more liquidity, but this positive association emerges only after the global financial crisis. A difference-in-differences analysis around the 2011 implementation of the Dodd-Frank Act corroborates these findings: the interaction between post-2011 and the pay-gap measures is positive and significant, implying that post-crisis compensation and governance reforms strengthened the incentive role of pay inequality. The effect is concentrated in on-balance-sheet liquidity creation and in banks with stronger risk-absorbing capacity, low market competition, and sound governance. Together, the results reveal a dynamic link between executive pay structure and bank behavior, suggesting that post-crisis reforms amplified the motivational channel of pay disparity while overly restrictive pay limits could unintentionally dampen banks’ liquidity-creation capacity.

Open via your library →

Cite this paper

https://doi.org/https://doi.org/10.1007/s10693-025-00460-2

Or copy a formatted citation

@article{shams2026,
  title        = {{Pay Gap Matters: Evidence from Bank Liquidity Creation}},
  author       = {Shams Pathan et al.},
  journal      = {Journal of Financial Services Research},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1007/s10693-025-00460-2},
}

Paste directly into BibTeX, Zotero, or your reference manager.

Flag this paper

Pay Gap Matters: Evidence from Bank Liquidity Creation

Flags are reviewed by the Arbiter methodology team within 5 business days.

Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.