Does inside debt alleviate banks' risk taking? Evidence from a quasi-natural experiment in the Chinese banking industry

Deng, Kebin; He, Jing; Kong, Dongmin; Zhang, Jian

doi:10.1016/j.ememar.2019.100622

Cited by 10 publications

(10 citation statements)

References 35 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In addition, Assenso-Okofo et al (2020) show that agency cost can be mitigated when managers' interests are aligned with the shareholders. Deng et al (2019) and Jiang et al (2019) also find that China's RBEC policy can effectively reduce banks' risk-taking. Therefore, we conjecture that RBEC would make lending managers become more cautious with their lending decisions.…”

Section: Hypothesis Developmentmentioning

confidence: 95%

The effect of earnings management on external loan price: evidence from China

Huang

Lin

et al. 2022

IJAIM

View full text Add to dashboard Cite

Purpose This paper aims to explore how external creditors assess firms’ financial aggressiveness in China. Design/methodology/approach Using bank loan-specific data, the authors investigate whether firms exhibit greater costs of bank loans when they engage in earnings manipulation and whether this association changes when restrictions on lenders’ compensation are promulgated. Findings The authors find compelling evidence that bank executives charge higher premiums on firms with accrual earnings management to compensate for additional financial risk but do not charge extra loan prices for firms conducting real earnings management (REM). The authors also find that the enactment of Robust Bank Executive Compensation (REBC) enhances the vigilance of bank executives on the overall client firms’ earnings manipulation, with the exception of REM conducted by state-owned firms. Originality/value The authors extend the current literature on the cost of external loans by focusing on bank loans and the influence of REBC. This study offers implications for policymakers in China and other emerging economics to control loan default and financial risk.

show abstract

Section: Hypothesis Developmentmentioning

confidence: 95%

The effect of earnings management on external loan price: evidence from China

Huang

Lin

et al. 2022

IJAIM

View full text Add to dashboard Cite

show abstract

Section: Introductionmentioning

confidence: 99%

“…First, this study contributes to the literature on the consequences of inside debt. Prior studies on the CEO inside debt mainly focus on the firm's risk (Sundaram and Yermack, 2007; Belkhir and Boubaker, 2013; Srivastav et al ., 2014, 2018; Bennett et al ., 2015; Van Bekkum, 2016; Deng et al ., 2019; Lee et al ., 2023). Although some studies have also found that inside debt is associated with the firm's innovative activities (Lee, 2019; Zhou et al ., 2021), little is known about its impact on digital transformation.…”

Section: Introductionmentioning

confidence: 99%

“…Before 2008, Chinese bank executive compensation incentives consisted mainly of compensation and equity incentives. The China Banking Regulatory Commission (CBRC) issued a banking CEO compensation deferral policy in 2010 (Deng et al, 2019). Specifically, commercial banks must defer more than 50% of the salaries of senior executives for more than three years.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Can setting up inside debt accelerate the bank's digital transformation? Evidence from China

Bian,

2024

BJM

View full text Add to dashboard Cite

PurposeDigital transformation is essential for commercial banks to maintain long-term competitiveness in the digital economy era. This study aims to investigate the relationship between inside debt and the bank's digital transformation.Design/methodology/approachThis study set up a quasi-natural experiment based on implementing the executive compensation deferral system in the Chinese banking industry. Using the annual panel data of 180 commercial banks in China from 2007 to 2021, this study employed the difference-in-differences (DID) method to conduct an empirical analysis.FindingsThis study confirms a significant statistical relationship between inside debt and the bank's digital transformation, and managerial myopia is the transmission channel of inside debt affecting the bank's digital transformation. Furthermore, the development of Internet finance and the enhancement of bankers' confidence will improve the contributions of inside debt to the bank's digital transformation.Originality/valueThis study contributes to the literature on inside debt and the bank's digital transformation. It has specific policy value for the scientific design of the banking compensation mechanism and accelerating banks' digital transformation.

show abstract

“…For instance, Milidonis et al [13] have identified a significant and negative relationship between chief executive officer (CEO) inside debt holdings and risk-taking behavior. Deng et al [14] showed that deferring CEO compensation significantly reduces bank risk-taking in an emerging market. Chen and Fan [15] investigated the effects of a borrowing firm's CEO inside debt holdings on the structure of the firm's syndicated loans.…”

Section: Introductionmentioning

confidence: 99%

Cash Salary, Inside Equity, or Inside Debt?—The Determinants and Optimal Value of Compensation Structure in a Long-term Incentive Model of Banks

Jiang

Yuan

2020

Sustainability

View full text Add to dashboard Cite

The design and optimization of executive compensation structure to reduce the risk-taking of banks is one of the core topics of corporate governance theory. Especially after the 2008 global financial crisis, due to the characteristics of banks, such as systemic risk, this issue has become more important. However, though widely concerned, the determinants and design principles of compensation are not thoroughly understood. Based on our previous work, the setup of a banker’s long-term total compensation model, we continue our research by setting up a theoretical model between total compensation, bank default risk, and the structure coefficient by simulating the result using data from Wells Fargo and Co. to draw the function image. We are the first to find out the determinants of structure, that is, the working time, current age, and tenure. What is more important is that we find that increasing the weight inside debt in the total compensation is not only helpful for the reduction of the bank’s default risk, but also an increase of the banker’s total compensation. We also illustrate the influence of a number of periods. We expect our findings to offer help regarding the formulation of policies for pay contracts.

show abstract

Does inside debt alleviate banks' risk taking? Evidence from a quasi-natural experiment in the Chinese banking industry

Cited by 10 publications

References 35 publications

The effect of earnings management on external loan price: evidence from China

The effect of earnings management on external loan price: evidence from China

Can setting up inside debt accelerate the bank's digital transformation? Evidence from China

Cash Salary, Inside Equity, or Inside Debt?—The Determinants and Optimal Value of Compensation Structure in a Long-term Incentive Model of Banks

Contact Info

Product

Resources

About