Does regulating remuneration affect the market value of European Union banks? Large versus small/medium sized banks

The aim of this paper was to analyze equity market reactions to the mandatory European Union regulation of remuneration policies in financial institutions. Using event study methodology, we investigated market reactions to the first European Directive on compensation policies after the financial crisis using a sample of 124 banks operating in the European Union. We divided the sample into two groups according to bank size considering four criteria: the US Dodd-Frank Act 2010, the Liikanen Report 2012, Global Systemically Important Banks 2011, and the European Central Bank 2014. We found strong evidence of an average negative market reaction to compensation regulation. Moreover, this negative reaction is stronger for large banks than for small/medium sized banks.