Risk-taking, Executive Compensation And Performance Of Commercial Banks

In recent years, with the development of the financial liberalization and economicglobalization, the crises in financial sector last. Many financial enterprises were caught off-guardby the U.S. financial crisis in2008, even many went into bankruptcy. There are many reasonsleading to the crisis, one of them is the irrational system of executive compensation for financialinstitutions, the executives will invest in high-risk projects to get high return, and make the bankstake excessive risk. In such circumstances, the risk-taking behavior of commercial banksbecomes the core issue again. Will the executives make the banks take more risk in order to seekfor short-term benefits? Will the shareholders constrain the excessive risk-taking behaviors ofthe executives by executive compensation systems? Will the risk-taking behaviors promotecorporation performance? What are the mechanisms for the executive compensation to influencebank performance? These are the questions that we will research.In this paper,16listed commercial banks in our country were chosen as research objects,including4state-owned commercial banks,9joint-stock commercial banks and3citycommercial banks, the time span is2007-2012, in empirical research, capital adequacy ratio andloan-to-deposit ratio are chosen as indicator of risk-taking, and ROA and TQ represent theaccounting performance and market performance of financial institutions.The results are as follows: There exists significant positive correlation between executivecompensation and bank risk-taking, but the inverted U-shaped curve relationship between thetwo does not exist, it shows that the shareholders do not constraint and punish the excessiverisk-taking behaviors of the executives, and ignore the combination of inspiration and constraint;The greater the risk, the poorer the accounting performance, but the better market does, thispaper argues that the improvement of risk level promotes corporate performance.There are bigdifferences of this conclusion with the study of many scholars, so the results must be testedfurther more; Risk-taking is the intermediary variable between compensation incentive andperformance; Due to the phenomenon of “too big to fail”, so the risk increases as the sizegrowing; State-owned banks have lower risk level than those of other banks; the Appropriate increase of the first shareholder’s shareholding proportion and the largest proportion of loans to asingle customer will reduce the level of risk. Finally, according to empirical result, the article putforward some suggestions for the promotion of performance and risk control, for example,improving the compensation system of the listed commercial banks、linking performanceevaluation to risk and so on.