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Executive compensation, equity structure and risk-taking in Chinese banks

Author

Listed:
  • Wenli Wang

    (Xi’an University of Technology)

  • Liangjie He

    (Xi’an University of Technology)

  • Jie Ma

    (InnerMongolia University of Finance and Economics)

  • Chun-Ping Chang

    (Shih Chien University at Kaohsiung)

Abstract

Executive compensation is an important part of the internal governance of commercial banks, and the rationality of the compensation mechanism directly affects the bank’s risk-taking. Based on the panel data of 34 listed small- and medium-sized banks in China from 2012 to 2020, this paper empirically examines the impact and mechanism between executive compensation and the risk-taking level of small- and medium-sized banks. We find that executives’ short-term executive compensation significantly and positively affects the risk-taking level of small- and medium-sized banks, while executives’ long-term executive compensation significantly and negatively affects the risk-taking. Furthermore, considering the specificity of the capital structure of small- and medium-sized banks, we analyse the moderating effect of the capital structure on the above roles and find that there is a partial moderating effect of the capital structure on the relationship between executive short-term compensation and risk-taking in small- and medium-sized banks. This study provides theoretical foundations and countermeasures for improving the executive compensation mechanism and optimising the equity structure to reduce the risk-taking of small- and medium-sized banks and maintain the stability of the financial system.

Suggested Citation

  • Wenli Wang & Liangjie He & Jie Ma & Chun-Ping Chang, 2024. "Executive compensation, equity structure and risk-taking in Chinese banks," Economic Change and Restructuring, Springer, vol. 57(3), pages 1-28, June.
    • Handle: RePEc:kap:ecopln:v:57:y:2024:i:3:d:10.1007_s10644-024-09701-1
    DOI: 10.1007/s10644-024-09701-1
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