Risk-Taking Behavior Of Commercial Banks,Based On The Perspective Of Inside Debt On Executive Pay

many financial institutions have been hit hard during the financial crisis in 2008,which makes the academia think deeply of whether the financial institutions take on too much risk.Executive pay, one of the important factors has been pushed to the wave. Previous research on executive pay are based on the equity incentive, considering that equity incentive is enough to solve agent problems of the company. But in the financial crisis, a lot of creditors were damaged.Inside debt then caused the the attention of academia,for it would ensure the interest of creditors.This paper considers the agency problem between shareholders & managers and creditors & managers. Assuming that the inside debt will be cut if executives taking on too much risk which is called "but wages mechanism". Assuming that the attitude of executive’s equity incentive towards risk is uncertain. Because when the difficulties come to bank, the executive may gain the biggest benefit, taking on too much risk to keep the bank’s existence. And when the bank is developed, the executives will tend to be more conservative to stabilize the bank’s development. After adding inside debt to the managers’pay, during the company’s predicament, managers will pay close attention to the liquidation value of the company that will close to their own interest, and reduce the risk for this account. Therefore, inside debt can reduce the risk of commercial Banks. In addition, this article demonstrated that in considering of the sensitivity of management equity incentive and inside debt to risk-taking, banks can set the proportion of equity incentive and inside debt that will maximize the value of the value of banks after paying for the executive and at the same time banks may takes a smaller risk.This paper selected 16 listed banks as a sample, using panel data fixed effects model test the effect between the inside debt of executive compensation and the risk-taking behavior of the commercial banks, joined the board size, the proportion of independent directors, the size of board of supervisors, the proportion of the first largest shareholder, debt ratio, return on equity, bank scale used to verify such variables as control variables. The empirical results show that there is significant negative correlation between inside debt and the risk of commercial bank. The results are verified in the process of derivation and empirical test.Joining the inside debt to executive pay can reduce the risk of banks. Under this conclusion, this paper proposes some policy suggestions such as perfecting the salary system of commercial banks.