Deferred Cash Compensation and Risk-Taking: Evidence From the Chinese Banking Industry
39 Pages Posted: 25 Jan 2019
Date Written: January 5, 2019
Starting in 2010, the China Banking Regulatory Commission (CBRC) mandated that between 40% and 50% of the annual variable compensation of senior commercial bank managers be paid over the subsequent 3 years or longer. We examine the implications of the CBRC deferred compensation regulation for bank risk-taking using a sample of 156 bank executives from 14 listed Chinese commercial banks. We find that before the 2010 regulation, high-risk banks deferred executive compensation less than low-risk banks. We also find that banks reduced their risk taking after the 2010 regulation, and the reduction was greater for banks with higher pre-regulation risk. Unlike prior research which examines equity compensation, we provide evidence on the use of deferred executive cash compensation and its implications for bank risk-taking in an emerging market.
Keywords: Deferred Executive Compensation; Bank Risk-Taking; Compensation Regulation; Multi-Period Agency
JEL Classification: G21; G28; G32; G38
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