Hierarchical Objective Conflicts And Over-tenure Bank Value Maximization

With the leaping development of the stock market in China, the listed state-owned commercial banks in China (China Construction Bank, Bank of China and Industrial & Commercial Bank of China) have become global top ten commercial banks with highest market value as Citibank and HSBC. However the highest market value does not represent the highest value. In recent years, "Bank value maximization" has gradually become the operation objective for commercial banks. However, neither the academic field nor the practical field has made a clear definition and systematic study on "what is the bank value" and "how to maximize the bank value". This paper attempts to answer and analyze the previously mentioned two questions.This paper holds that a steadily operated state-owned commercial bank should not just pursue the maximization of short-term value, but attach more importance to the maximization of over-tenure value, however, there are many factors interfering with the achievement of the latter, such as the imperfectness of corporate governance, the short-termism of the bankers, the hierarchical objective conflicts, etc. To systematically discuss the above-mentioned restrictive factors is far beyond the content of a doctoral dessertation. This paper chooses to discuss the influence of hierarchical objective conflicts in state-owned commercial banks on the maximization of over-tenure bank value on the basis of the banker's utility function. The discussion of this issue not only has theoretical innovation significance, but also has exigent and important practical significance.Based on the brief introduction to the theoretical basis and literature review, this paper first discusses the connotation of "Bank value" and "Maximization of Bank Value". We hold that the state-owned commercial banks should pursue value maximization based on benefit maximization of all the stakeholder. Hierarchical objective conflict is an important factor restricting the maximization of over-tenure bank value. This paper uses theoretical model to discuss the behavior differences triggered by the differences between utility function of branch bankers and that of head bankers under the objective function differences. It also discusses relevant incentive mechanisms from the theoretical point of view. In the last part, the paper puts forward suggestions on realizing maximization of over-tenure value of state-owned commercial banks from performance evaluation, risk management, internal audit and banker market and selection mechanism, etc.The major innovations of the thesis lay in the following aspects: firstly it makes systematic discussion on bank value and deep analysis on the maximization of bank value and over-tenure bank value, therefore fills in the blank of domestic and international systematic research in this field; secondly, the current literatures mostly concentrate on discussing the principal-agent issue between the state as the large shareholder and the manager of state-owned commercial banks, they seldom make systematic discussion on the influences of objective conflicts between branch banks and head bank on the maximization of over-tenure bank value, therefore this paper is quite innovative in its perspective of research. Besides, this paper establishes theoretical models to discuss the optimal incentive model design from three aspects, i.e. material, controlling power and branch banker's career concerns. The model structure takes the existed practical problems into consideration, such as the multiple tasks of branch bankers, conflicts between long-term and short-term operation objectives and different performance indicator measurements for different tasks, etc. On this basis, the paper draws its conclusion and puts forward some suggestions.