Jian Cai |

Research Economist

Jian Cai, Research Economist

Jian Cai is a research economist in the Research Department of the Federal Reserve Bank of Cleveland. She is primarily interested in theoretical and empirical corporate finance and financial intermediation, and empirical asset pricing. Her current work focuses on interbank competition, executive compensation, and agency problems.

Dr. Cai earned a PhD in finance and an MBA from Washington University in St. Louis. She also holds a bachelor’s degree in economics from Fudan University (Shanghai, China) and a master’s degree in marketing research from Southern Illinois University at Edwardsville. Prior to her PhD study, she worked for Fleishman-Hillard as a senior research manager and for Commerce Bancshares as a senior business intelligence analyst and a bank officer.

  • Fed Publications
Title Date Publication Author(s) Type


2010-13 Jian Cai; Kent Cherny; Todd Milbourn; Economic Commentary
Abstract: We review why executive compensation contracts are often structured the way they are, analyze risk incentives stemming from various pay schemes, and examine the tendency of the banking and finance industry toward excessive risk-taking. Studying the typical executive pay structures in banking and finance before the financial crisis reveals some potentially problematic practices. These practices may have encouraged “short-termism” and excessive risk-taking, which are two behaviors bank regulators aim to prevent with their recently issued guidance on incentive compensation.



October, 2009 Federal Reserve Bank of Cleveland, working paper no. 09-09 Jian Cai; Working Papers
Abstract: It is well recognized that loan syndication generates a moral hazard problem by diluting the lead arranger’s incentive to monitor the borrower. This paper proposes and tests a novel view that reciprocal arrangements among lead arrangers serve as an effective mechanism to mitigate this agency problem. Lender arrangements in about seven out of ten syndicated loans are reciprocal in the sense that lead arrangers also participate in loans that are led by their participant lenders. Syndicate lenders share reciprocity through such arrangements as they can mutually benefifit from each other’s monitoring effort. In fear of losing this reciprocity, lead arrangers will dutifully monitor their borrowers. Loans arranged in such a reciprocal way thus feature reduced moral hazard. I find strong empirical evidence that is consistent with the reciprocity effect. Controlling for lender, borrower, and loan characteristics, I show that: (i) lead arrangers retain on average 4.3% less of the loans with reciprocity than those without reciprocity, (ii) the average interest spread over LIBOR on drawn funds is 11 basis points lower on loans with reciprocity, and (iii) the default probability is 4.7% lower among loans with reciprocity. These results indicate a cooperative equilibrium in loan syndication and have important implications to lending institutions, borrowing firms, and regulators.