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Prof. Aytekin Ertan
Associate Professor of Accounting
London Business School

Using confidential supervisory data from the Federal Reserve’s FR Y-14 collections, we examine the implications of the accuracy with which banks project their own compensation expense. We find that banks underproject compensation on average and that they project performance-contingent pay less accurately than salaries and benefits. Projection errors predict lending, and the direction of the error matters: banks whose realized compensation falls short of their projections subsequently reduce loan growth, whereas compensation above projections is not followed by any change. For fixed compensation, errors in either direction are followed by lower lending, consistent with planning quality carrying information about decisions; for variable compensation, only shortfalls matter, consistent with planning quality and with realized performance. Banks that plan larger reductions in compensation under the severely adverse scenario exhibit modestly lower subsequent tail risk. Overall, our inferences suggest that supervisory projections of operating expenses are informative about the quality of banks’ internal information.

Prof. Aytekin Ertan joined London Business School in 2014 after graduating with a PhD from Yale. He organises his research into three streams: the real effects of disclosure regulation, the role of accounting in banking and credit contracting, and the interplay between bank supervision and financial reporting.

Aytekin has published widely in top journals, including the Accounting Review, Journal of Accounting & Economics, Journal of Accounting Research, Review of Accounting Studies, and Review of Financial Studies. He referees for numerous academic outlets and is on the editorial boards of the Accounting Review, Review of Accounting Studies, and Contemporary Accounting Research.

At LBS, Aytekin teaches M&A, private equity, valuation, and financial reporting and analysis, exclusively in Executive Education. He directs the M&A programme and has delivered customised programmes for dozens of corporate clients around the world. He has also taught in the EMBA, full-time MBA, Masters in Finance, and PhD programmes.