A Threshold Regression Approach on Bank Manager’s Equity-based Compensation and Non-interest Income in Taiwan

• Main Authors: YI-TZU LIANG, 梁逸慈
• Other Authors: SHIH-YUN WANG
• Format: Others
• Published: 2015
• Online Access: http://ndltd.ncl.edu.tw/handle/19413385416236014708

碩士 === 國立東華大學 === 財務金融學系 === 103 === In this study, we applied the threshold regression model proposed by Hanson in 1999 to investigate the relationship between bank managers’ equity-based compensation and non-interest income of bank with empirical analysis based on the data of 23 listed banks collected from 2005 to 2013 in Taiwan. We investigated the motivations for bank managers to expand non-interest business from the perspective of bank managers’ equity-based compensation, assuming that non-interest income not only increases the total income of a bank but also reduces potential risks with stable income sources. After applying threshold regression model to differentiate different levels of equity-based compensation, we found that there may be agency problem when the bank managers in Taiwan have lower equity-based compensation. We also found that the threshold effect in traditional bank is more significant. This may be due to that traditional banks have less diversified business than financial holding corporations and usually focus on traditional interest business. Therefore, traditional banks have stronger motivation to expand non-interest income and the motivations of bank managers can be clearly differentiated with a quantitative threshold as investment motivation when there is low equity-based compensation versus risk management motivation when there is high equity-based compensation. In addition, there is inverse proportional relationship between non-interest income and managerial equity ownership so bank managers won’t be motivated to diversify bank business to disperse the risks of their investment based on their own shareholding level.