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Suppose that New Sense pays very large bonuses to senior managers when the bank's earnings are high. All else equal, awarding high bonuses for high
Suppose that New Sense pays very large bonuses to senior managers when the bank's earnings are high. All else equal, awarding high bonuses for high earnings encourage managers to take on excessive risk. Suppose that New Sense seeks to obtain short-term funds from households. To obtain these funds, New Sense will most likely need to participate in Suppose that the board of directors of New Sense consists primarily of inside directors. This board of directors is likely to result in conflicts of interest as compared to a board consisting primarily of outside directors
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