Abstract
This paper investigates the impact of bank executive pay limits on discretionary loan loss provisions (DLLPs) in the context of a large emerging economy, such as that of China. We find that a bank executive pay limit primarily aimed at temporarily suspending stock option incentive plans leads to a significant rise in income-decreasing DLLPs, whereas a pay limit implemented to restrict the total emoluments leads to a significant decline in income-increasing DLLPs. Moreover, the degree of the impact of pay limits on bank DLLPs varies with CEOs’ personal characteristics and bank executive perquisites.
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