Incentive contracts and bank performance

Hongbin Li, Scott Rozelle and Li-An Zhou

The Economics of Transition, 2007, vol. 15, issue 1, 109-124

Abstract: This paper, using unique survey data from the banking industry in rural China, investigates the effect of incentive contracts on performance. In the context of China's economic transition, we find that the incentive contracts have a positive effect on the bank manager's performance in deposit taking and non‐performing loan reduction. This finding is robust when we control for the endogeneity of incentive contracts. Our empirical results present evidence on the positive effects of incentive‐based banking reforms in rural China.

Date: 2007
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