Does Executive Compensation Promote Bankers’ Excessive Risk Taking?------Evidence from Chinese Real Estate Lending Market
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| Title | Does Executive Compensation Promote Bankers’ Excessive Risk Taking?------Evidence from Chinese Real Estate Lending Market
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| Author | Hong Zheng, Shen yu and Wu Wei |
| Organization | Southwest University of Finance and Economics |
| Email | xchill@163.com |
| Key Words | Bank Executive; Compensation Incentive; Excessive Risk Taking; Real Estate Lending |
| Abstract | After subprime crisis researchers and policy makers begin to emphasize the influence of financial executive’s compensation on risk taking. In this paper, through empirically testing the relationship between China’s bank executive compensation and real estate lending, we find that real estate lending is positively related with bank executive compensation; furthermore the relationship is inverse “U” shape. When executive compensation begins to increase, bankers take excessive risk by extending more real estate lending, after the threshold, bankers become conservative to reduce the credit. We also show that increased compensation generally promotes risk taking for city and rural banks, while prevents such action for national banks. The results have several implications for financial executive compensation reform and supervision policies in curbing current real estate bubble to avoid financial crisis. |
| Serial Number | WP140 |
| Time | 2011-10-27 |
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