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CEO compensation, excess reserves and risk-taking of Chinese banks: Do monetary policies have a restraining effect?

Boateng, Agyenim; Nguyen, Vu Hong Thai; Du, Min

Authors

Agyenim Boateng

Vu Hong Thai Nguyen



Abstract

We examine the effects of CEO compensation, excess reserves, and role of monetary policy on bank risk-taking behaviour based on a sample of 88 Chinese commercial banks over the period of 2003–2014. We find evidence that suggests that incentives present in CEO compensation contracts and excess reserves exert a positive and significant impact on risk-taking and credit risk. However, we find that the positive effects of CEO compensation and excess reserves on risk-taking are cancelled out by the interaction of CEO compensation and excess reserves. Further analysis suggests that the central bank’s monetary policy serves to restrain the effects of an interaction between CEO compensation and excess reserves on bank risk-taking and credit risk. This study extends the theoretical model, which indicates that excess reserves are a major source of credit risk, and notes that the effects of incentives inherent in CEO compensation contracts and excess reserves on bank risk policies are contingent on the monetary policy pursued by the central bank in China’s emerging economy.

Presentation Conference Type Conference Paper (unpublished)
Conference Name International Finance and Banking Society (IFABS) Asia Conference
Start Date Aug 31, 2017
End Date Sep 2, 2017
Deposit Date Dec 1, 2022
Public URL http://researchrepository.napier.ac.uk/Output/2968537