Information, Allocation Of Authority And Cooperate Governance

Making an on-the-spot investigation over the research in cooperate governance, we can discover that in general, bank influence the cooperate governance of the firm in different directions through financing facilities. There are only a little research about the cooperate governance of bank itself until now. It seems that the cooperate governance of bank is unassailably, maybe the public think that the cooperate governance of bank is same to other firms, it is unnecessary to study the cooperate governance of bank alone. But in 1990s, the collapse of Barings Bank, the loss of Daiwa Bank and the Financial Crisis in the Southeast Asia impel economists examine the banks again. Specially, the Financial Crisis in the Southeast Asia bursting in 1997 reveals the intrinsic weakness of the banks in Indonesia, Korea, Malaysia, Thailand, and Philippine. All the events make the bank one of the applying objects of the cooperate governance theory.After reviewing the development of the theory of cooperate governance briefly, this paper definite process-guiding cooperate governance based power and authority. This definition is different to the definition based the study of cooperate governance under financial structure. This paper studies the adjustment of the power allocation in the banking company based on the discussion of the information distribution.First, we describe a credit contract signing between a bank and a firm needing credit funds, and we assign board of directors and manager of the bank as the participator to the cooperate governance contract. Under this frame, we definite the control power in the bank as the contingent control power to the contingencies unforeseen in the implement progress of the credit contract, in the other words, the residual control rights to the credit contract. Corresponding to the residual control rights is residual risk. We abstract the residual risks as the credit risk of the firm signing the credit contract, and the information distribution about the credit risk of the debiting firm will present obvious difference under inner bank and outer bank. Under the frame of inner bank, the board of directors and manager of the bank enjoy same information structure, and the information is gained from the long-term and steady cooperation between the bank and the firm. Isomorphism of the information between the board of directors and manager make the cooperate governance under inner bank deteriorate to a standard principal-agent problem, and in this scene the formal and real authority of the bank belong to the board of directors. But under the frame of outer bank, the development of technology, the appearance of complicated financial tools, the breaking out of function of risk management and the changing of business model, all this change the way of the bank gaining information about the firm. The manager of the bank gains dominant information structure to the board of directors, the appearance of specific human capital and the enlargement discretionary power make the renegotiation about the cooperate governance of the bank unavoidable. The board of directors and the manager of the bank predict the contact will be incomplete in the initial stage designing the cooperate governance, it will be a contingent governance contract keeping nimble. Consequently, under outer bank frame, the formal and real authority of the bank will divided, they will belong to the board of directors and the manager respectively. The analysis of this paper shows that the rent seeking of the specific human capital should be restrict in some scope, and the board of directors of the bank will gain pledgeable income. In this scope, the board of directors and the manager of the bank will bargaining about appropriable quasi rents, the bargaining about appropriable quasi rents will make a Pareto improvement to the board of directors and the manager, provided there don't exist the burst risk of renegotiation. But when the board of directors of the bank can not gain the pledgeable income, the control rights will come back to the hand of board of directors, this will deteriorate the utility of the board of directors and manager of the bank under outer bank frame.Second, we discuss the concrete forms of control rights allocation in bank companies. The control rights allocation under inner bank requires decentralization cooperate governance contract to satisfied the need of specific human capital. But after we lead more participators into cooperate governance structure, the decentralization of cooperate governance will carry coordination in organization. In this sense, the bank will balance the cost of coordination in organization and accurate degrees of information, the balance progress make the cooperate governance of bank be a second-best equilibrium. In this paper, we analyze cooperate governance including more than one manager and when there exist competition among principals. The analyses shows that when there exist more than one banking managers, if the information observed by different managers are not correspond to each other, the managers will compete for the empower of the board of directors. The competition will make the managers show their type parameters truly, but on the other hand, the board of directors will undertake the cost in the competition. Therefore, under the inner bank frame, the decentralization of cooperate governance will bring the bank better risk information structure about the firm, but the coordination in organization make the formal and real authority in the bank overlapping together. In addition, when the information observed by different managers are correspond to each other, the free-riding problem will appear among bank managers, the manager will gain the real authority of the bank, decentralization of cooperate governance will change into centralization of cooperate governance. Moreover, when there exists competition among principals, we show that higher decentralization in the bank is necessary. Typically, maintaining the independence of the manager to the board of directors is more important. Supposing one of the board of directors is engaged in related trade, in this case, if the control rights is grasped by the board of directors, than the manager will take conservative strategy, and hide his type parameters intentionally. We think that the manager of the bank will be non-performance, he will fawn on the members of the board of directors at the same time and allocate his effort averagely.Third, we study the collusion that maybe appear in the cooperate governance. In this step, we loosen the hypothesis that there does not exist private contract among participators of the cooperate governance contract, that is, there is no collaboration and collusion in the organization. Collision will violate the direct revelation principle in mechanism design, and increase the factors of the information factors, make the mechanism design more complicated. Collusion in the organization distorts the information gained by the principal, and increases the cost of mechanism design. We study two types of collusion in banking company. In the three-tier organization composed by board of the directors of the bank, the manager of the bank and the firm needs credit fund, we inspect the collusion between the manager and the firm. We show that board of the directors of the bank will approve or acquiesce in the manager and the firm seizes some rents in limited scope after balance. In the other side, the existence of collusion in organization can explain the strategy taken by the bank to avoid collusion, for example, the bank establish many independent committee, such as Risk Management Committee, Compensation Committee, and Nomination and Governance Committee and so on. We think that as the committees perfect the structure of the cooperate governance, the more important function of the committees is to avoid the collusion in organization. Specially, though the committees do not collect the information about the firm needs credit fund, but the exogenous existence of the mechanism of audit and punishment can restrain expedition of collusion. Based on the particularity of the bank, we think the collusion among managers of the bank is a information-sharing coalition. Form the basic principle of organization theory, board of the directors of the bank can take such measures to violate the collusion among managers, for example, increasing the organization cost of the coalition and giving higher award to the manager who break away from the coalition and provide better information to board of the directors of the bank.At last, we study a supplement to the formal cooperate governance contract in this paper, corporate culture can smooth the wrong arrangement of the authority and the specific human capital in the cooperate governance contract. This paper discusses the parallel embeddedness among managers of the bank and the vertical embeddedness between board of the directors and managers of the bank. The result shows that enlarging the duration of the bank cooperate governance contract and exchanging the credit recorder of the manager in a more large scope can restrain the behavior of the manager effectively.We study the cooperate governance of the new type enterprise in the frame of incomplete contract and organization design theory, especially, we adopt the bank corporate as the representative. Different to the classical capitalism enterprise, the distribution of information and knowledge becomes the core resource in the banking company, and this change make mechanism design under the frame of complete contract can not explain many governance phenomenon of the banking company. We consider bounded rationality as the bases of the incomplete contract, and we apply the theory of incomplete contract theory to study the influence of specific human capital, tactic knowledge and the change of allocation of the control rights to the renegotiation of the cooperate governance contract.After defining process-guiding cooperate governance based power and authority, we firmly believe that the information structure is a more important factor than finance structure in the banking company. At the same time, the analysis under the frame information structure gives the different result to the theory of shareholders mutual governance mechanism. Because in the banking company, only the manager grasps the core information of the bank, but the participation of the shareholders to the cooperate governance progress just can be seen as an exogenous restrain mechanism to bring into play. In this paper, the embeddedness model maybe can explain the influence of the shareholders to the cooperate governance of the banking company.This paper study the influence of different business models to the control rights in the company based on distinguish inner bank and outer bank frame at the first time. And we study how the change of the distribution of information influence the adjustment of the residual control rights in the banking company according to thelogic line: the allocation of the control rights between one principal and one agent→coordination between more than one principal and agent→Collusion in the organization.