Do Perks Matter? Evidence from Chinese Banks

Abstract

This paper investigates why perks are high, how perks are related to bank performance, and which monitoring function works in the Chinese banking sector. Results show that stronger CEO power, CEOs with political ties, larger banks, and older banks are all associated with higher perks. Although we are unable to find a significant relationship between perks and entrenchment, banks with high perks underperform versus those with low perks. The relationship between perks and performance is more pronounced for banks that are prone to emphasize status, such as large banks and banks with high CEO power. Banks with high perks are also associated with high risk-taking and are more likely to be engaged in events that have a high variability of performance. Boards of directors in high-perk banks are less diversified, but surprisingly, more professional. Evidence also presents that fewer directors with unaffiliated business experience, fewer female directors, and older directors serve on the boards of high-perk banks. Large boards and directors with a higher education or academic background, which are common in high-perk banks, fail to efficiently monitor perks. Gender-diverse boards provide better monitoring.