Deferred Cash Compensation and Risk-Taking: Evidence From the Chinese Banking Industry

39 Pages Posted: 25 Jan 2019

See all articles by Wei Jiang

Wei Jiang

Jinan University

Yunguo Liu

Sun Yat-Sen University (SYSU)

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Yue Xu

Sun Yat-Sen University (SYSU)

Date Written: January 5, 2019

Abstract

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

Suggested Citation

Jiang, Wei and Liu, Yunguo and Lobo, Gerald J. and Xu, Yue, Deferred Cash Compensation and Risk-Taking: Evidence From the Chinese Banking Industry (January 5, 2019). Pacific-Basin Finance Journal, Vol. 53, 2019, Available at SSRN: https://ssrn.com/abstract=3310714

Wei Jiang

Jinan University ( email )

Huang Pu Da Dao Xi 601, Tian He District
Guangzhou, Guangdong 510632
China

Yunguo Liu

Sun Yat-Sen University (SYSU) ( email )

Guangzhou, Guangdong
China

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

Yue Xu (Contact Author)

Sun Yat-Sen University (SYSU) ( email )

Guangzhou, Guangdong
China

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