CEO Pay Gap and Bank Risk: Evidence from Listed Commercial Banks in China
Brecha salarial de los directores ejecutivos y riesgo bancario: evidencia de bancos comerciales que cotizan en bolsa en China
Supporting Agencies
- Project “Research on Financial Services to Promote High-Quality Development of Private Enterprises in Liaoning Province” (Project No. 2025lslybwzzkt-073) sponsored by Liaoning Federation of Social Sciences
- Project “Research on the Impact of ESG Evaluation on Enterprise Financial Performance" sponsored by China Association of Chief Financial Officers
Abstract
This paper investigates the influence of the chief executive officer (CEO) pay gap on bank risk in a distinct corporate governance context where CEO compensation is exclusively limited to a cash-based salary plus a bonus. A sample of 37 Chinese listed banks from 2010 to 2022 uses a fixed effect regression model. Consistent with the tournament theory, the authors conjecture that the CEO pay gap (CPG), measured by the pay gap (PGAP) and the CEO pay slice (CPS), is significantly and positively associated with bank risk, measured by the inverse z-score. Results reveal heterogeneity, with a notable positive effect evident in the subsets of non-state-owned and large banks. The study results have been extensively validated through several robustness checks, including alternate measures of the CPG, bank risk, the 2SLS-IV approach, and excluding the COVID-19 period. The paper has important implications for unique corporate governance systems, such as those that prevail in the Chinese banking system, where the results may inform and influence corporate practices and regulatory decisions.
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