Executive Monetary Compensation Incentives, Equity Incentives, and Corporate Default Risk: Empirical Evidence from China

Executive incentives serve as a core mechanism in corporate governance, with different incentive structures exerting distinct effects on corporate default risk. This study investigates the impact of executive incentives on corporate default risk and its underlying mechanisms, focusing on two primary forms: executive monetary compensation incentives and equity incentives. Using data from China’s A-share listed enterprises spanning 2005–2022, the empirical findings reveal that: (1) Executive monetary compensation incentives significantly reduce corporate default risk, whereas equity incentives exhibit a U-shaped relationship with default risk, indicating the existence of an optimal threshold—both insufficient and excessive equity incentives elevate default risk; (2) Agency costs and financing constraints mediate the effect of monetary compensation incentives, while managerial myopia functions as the transmission channel for equity incentives; (3) Heterogeneous effects emerge across firms with distinct ownership types and organizational life cycle stages.