Research On Executive Compensation GAP And Risk-taking Of China's Financial Institutions

Due to the relative relaxation of the regulatory environment and the high entry-level characteristics of the financial industry,the salary levels of financial institution executives have been far ahead of other industries.The “high-priced salary” problem of financial institution executives exposed by the international financial crisis in 2007-2009 has attracted the attention of the regulatory authorities and the public.Unreasonable executive compensation incentives that over-burden financial institutions are considered to be one of the root causes of the financial crisis.China's regulatory authorities have introduced a series of measures to limit compensation,including stipulating that the upper limit of executive compensation for central enterprises should not exceed 30 times the average compensation of ordinary employees in the previous year.However,some financial institution executives still receive dozens of times higher than the executive team members in the case of declining performance,which is higher than the average employee's hundreds of times of compensation,causing public dissatisfaction.Unreasonable executive compensation incentives that make financial institutions excessively take risks are considered to be one of the root causes of the financial crisis.In the context of the post-financial crisis era,based on the data of listed financial institutions in China,consider the compensation gap as an entry point and the risk consequences a foothold,this paper aims to empirically study the relationship between executive compensation gap of financial institutions and risk-taking by constructing an unbalanced panel data model.In addition to the introduction,this paper is divided into three parts.The first part is the theoretical analysis of the executive compensation gap and risk exposure.Firstly,the related concepts of this paper are defined,including financial institutions,executives,executive compensation,executive compensation gap,risk-taking,etc.Secondly,the formation of the compensation gap of executives in financial institutions and the possible relationship between the financial institution executive compensation gap and risk-taking are analyzed through principal-agent theory,human capital theory,tournament theory and behavior theory,which lays a theoretical foundation for the following research hypotheses.The second part is an empirical analysis of the executive compensation gap and risk-taking of China's financial institutions.Based on the relevant theories and the research results at home and abroad,this paper divides the executive compensation gap of Chinese financial institutions into two types and three forms and proposes corresponding research hypotheses.The data in 2008-2017 of 48 financial institutions listed in A-shares in 2012 and prior years are used to establish an unbalanced panel model for regression analysis.Combining the theory and empirical results,this paper comprehensively analyze the relationship between the internal and external executive compensation gap and risk-taking of China's Financial Institutions.The third part is the conclusions and recommendations.The conclusions of this paper are as follows:(1)The internal compensation gap of executive team of Chinese financial institutions is positively related to the risk-taking.(2)The compensation gap between executives and ordinary employees of Chinese financial institutions is positively related to the risk-taking.(3)The external executive compensation gaps of Chinese financial institutions is positively related to the risk-taking.In view of the above conclusions,this paper puts forward the following suggestions:(1)Establish a compensation incentive mechanism linked to risk and set a reasonable executive compensation gap.(2)Optimize the executive compensation organization and explore a diversified incentive model.(3)Strengthen information disclosure and improve internal and external regulatory mechanisms.The innovations of this paper are as follows:(1)Using listed financial institutions as a research sample to study the relationship between executive compensation gap and risk-taking,is more targeted and contemporary than using the sample of commercial banks or listed companies that exclude financial institutions.(2)Studying the relationship between the financial institution's executive compensation gap and risk-taking from the internal and external gaps is more comprehensive than from just one aspect.