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AbstractManuscript TypeReviewResearch Question/IssueWe survey the literature on corporate governance in banks in the US and international settings. We discuss how the specialness of banks, deposit insurance, high bank leverage, and bank regulation interact with bank governance. We evaluate bank governance from three perspectives: (1) maximizing bank equity value, (2) maximizing total enterprise value, and (3) maximizing social objectives. Our survey includes evidence on how bank governance differs from that of manufacturing firms. We also survey studies on managerial incentives in banks and their implications for bank performance and risk taking before and during the 2007–2008 financial crisis.Research Findings/InsightsThe high leverage (usually above 90 percent) of banking institutions gives rise to a trade‐off between strengthening equity governance and maximizing enterprise value. Aligning managers very closely with shareholders can give rise to strong incentives for risk shifting to the detriment of firm value. The bank risk choices might also go against the societal objectives of a stable financial system.Theoretical/Academic ImplicationsWe provide a framework for the optimal design of bank governance and bank regulation, considering the objectives of both depositors and society‐at‐large in addition to those of bank shareholders. This framework could be especially important in determining risk choices by banks and the effects of such on the stability of the financial system.Practitioner/Policy ImplicationsOur analysis of the literature surveyed has policy implications for bank regulation, top‐management compensation in banks, and directives for design of governance in banks. We discuss implications for direct regulation of banks and regulation of bank governance. The findings surveyed provide guidance for board independence, board size, board composition, and incentive features in top‐management compensation.

AbstractManuscript TypeEmpiricalResearch Question/IssueWhile regulation reduces the discretion of CEOs, it is also expected to prompt effort and efficiency. This paper develops a link between regulation and the two main competing theories of executive compensation (efficiency vs. entrenchment) and investigates whether CEO pay‐performance sensitivity differs across alternative regulatory regimes in the European energy industry.Research Findings/InsightsUsing a panel of energy utilities from 12 EU countries tracked from 2000 to 2011, we find that managerial compensation is sensitive to performance only if the firm is subject to incentive regulation, not in the case of cost‐based contracts. We also find that incentive regulation makes managerial entrenchment less likely, while CEOs subject to cost‐based regulation appear to be more entrenched with the board, obtaining compensation that may even increase when (accounting) performance deteriorates.Theoretical/Academic ImplicationsWe derive a conceptual framework that enables us to investigate the interplay between the strength of corporate governance (incentives vs. board monitoring) and the type of regulatory contracts.Practitioner/Policy ImplicationsOur findings suggest that in industries where competition looms – mimicked by the regulatory framework – CEO compensations are more responsive to stock‐based and accounting performance measures and managerial entrenchment is less likely. Hence, corporate governance (monitoring and/or compensation) and regulation complement each other. In contrast, where regulation is not efficiency oriented, the adoption of performance‐related contracts seems to bring no advantage to firms and only additional costs to shareholders, also due to CEO entrenchment.