Executive compensation, board independence and bank efficiency in China: the effects of the financial crisis

Molyneux, Philip, Nguyen, Linh H and Zhang, Xiaoxiang (2014) Executive compensation, board independence and bank efficiency in China: the effects of the financial crisis. Working Paper. University of St Andrews.

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Abstract

This paper investigates how executive compensation affects bank efficiency in China. Using commercial bank data from 2004 and 2011, this study captures the period of major change in terms of bank compensation in the country and the effects of the financial crisis. It is found that higher compensation to executives reduces bank efficiency and this negative impact becomes more severe during the financial crisis. In contrast, a higher number of unpaid non-executive directors in the boardroom improves bank efficiency. However, this positive influence becomes weaker when banks face financial crisis. By further focusing on the board composition in the listed banks using propensity score matching, we find a difference between the treatment effects of non-executive directors of listed and those of non-listed banks. This result reveals that nonlisted banks would have benefited from listing by having monitoring and advisory services of non-executive directors. Such a benefit, nevertheless, might have been converted into private benefits of control once non-listed banks had become listed.

Item Type: Reports and working papers (Working Paper)
Schools and Departments: School of Business, Management and Economics > Business and Management
Research Centres and Groups: Business and Finance Research Group
Subjects: H Social Sciences > HG Finance > HG1501 Banking
Depositing User: Xiaoxiang Zhang
Date Deposited: 14 Dec 2017 15:35
Last Modified: 14 Dec 2017 15:35
URI: http://sro.sussex.ac.uk/id/eprint/72060

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