Clawback and Malus Provision: Is It Effective In Mitigating Risk-Taking Behavior?
DOI:
https://doi.org/10.22219/jrak.v15i4.37297Keywords:
Bank, Clawback and Malus, Executive Compensation, Material Risk Taker, Risk-Taking BehaviorAbstract
Purpose: This study aims to examine the role of clawback and malus provisions in moderating the effect of executive compensation on bank risk-taking behavior.
Methodology/approach: This study employed a quantitative approach with a population of all banking companies listed on the IDX for the period 2018-2023. The final sample included in the random effect regression model was 19 banks (114 fitm-year observations). All of the research data were obtained from the bank's annual report, available on their websites.
Findings: This study uncovered that executive compensation exerted no effect on bank risk-taking behavior and was also not moderated by clawback and malus provisions. However, clawback and malus provisions have been proven to reduce bank risk-taking behavior as measured by Capital Adequacy Ratio.
Practical implications: This study suggests that clawback and malus provisions are prominent factors in suppressing bank risk-taking behavior, which is represented by material risk takers (MRT). Therefore, law enforcement related to this provision needs to be strengthened to be more effective in controlling excessive risk-taking behavior in the banking sector.
Originality/value: This study examines the effectiveness of POJK No. 45/POJK.03/2015 related to the obligation of banks to implement clawback and malus provisions in material risk taker’s compensation contracts.
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