Research On The Route Of Influencing On Bank Risk And The Optimal Structure Of Banker's Compensation

The relationship between executive compensation and risk-taking is one of the core themes of corporate governance theory.The research originated in a 1976 Jensen and Meckling dissertation,but the company has been the subject of research for a long time.However,after the global financial crisis in 2008,compared with other types of enterprises,due to the particularity of banks(such as systemic risk),research on the relationship between banks and risks has become more important.Taking a risk by a single bank may cause the entire economy to fall into a downturn or even collapse,and may bring international impacts and consequences.Therefore,the research in this paper is very important to maintain the stability of the national economy,especially the sustainable development of the financial system.The main contents of this paper are: First,a compensation model based on longterm debt was created.First,the function of inside debt and bank default risk is described,then the nature of the function and related indicators are analyzed,and a fitting plot is drawn based on Wells Fargo & Co.data using the plot point method.This article directly obtains some more intuitive properties from the diagram,which cannot be obtained from other mathematical methods.Based on this,a black box effect is proposed.Second,based on the long-term total compensation proposed in Chapter 3,a structural coefficient model of bank default risk is established.Characterize the structure function and the function of bank default risk,then analyze the determinants and other properties,functions,and related indicators of bank default risk,and then use the Wells Fargo & Co.data in Section 7 to draw fitted images.Third,a multi-stage decision-making model based on long-term total compensation was established to explain the path in which executive compensation affects bank risk.The model includes two decisions: options investment and bond investment.Then analyze the Vega value and sensitivity of the decision return and the nature of other related variables to find the default risk and decision weight(decision structure coefficient)of the optimal risk level to maximize the decision return.Curve fitting was then performed and the function images were analyzed in Section 5.Finally,the optimal salary structure and decision-making structure were found through the optimization method.The main research methods of this paper are: theoretical analysis,using the method of theoretical analysis to establish a long-term salary model for executives,a pay structure model for executives,and a decision model for executives;case analysis,numerical analysis combined with empirical curve fitting.This article conducts a case study of Wells Fargo & Co.data,and uses United Bankshares data for a robust test.This paper combines mathematical models and financial management related theories,such as optimization theory,operational research theory,and specific case values to perform numerical analysis on the research object to obtain the optimal solution that meets the conditions;the method of combining numbers and shapes is mainly reflected in two aspect,the first method is to draw an implicit function to the point method,and the second is curve fitting.The data sources of this article are CEO salary data from Execu Comp,bank of America financial data from Bv D Orbis and stock price data from CRSPCOMPUSTAT databases.The main results of this study are as follows: First,the long-term compensation of executives is modeled based on the practice of salary settlement and payment activities,which proves the relationship between inside debt and bank default risk.This article argues that,although inside debt have less impact on increasing risk than inside equity,it is particularly important to express them simply as a tool for reducing risk,which is very inaccurate.Secondly,the relationship between the structure coefficient of total compensation and the bank's risk of default is proved by modeling the structure coefficient of bank executive compensation.An important point is that increasing the proportion of inside debt in total compensation will not only help reduce the risk of default by banks,but also increase the total compensation of executives.Thirdly,a multi-stage decision-making model including options investment and bond investment is established to reveal the route of compensation impact risk.By constructing a specific formula to explain the relationship between the benefits of multi-stage decision-making and the bank's default risk and decision weight(decision structure coefficient).The contributions of this paper are:(1)the definition and differentiation of the three types of compensation in these three dimensions in relation to risk and related calculations,and further analysis of changes in their nature when considering bankruptcy;established the entire term of senior executives(equivalent to "longterm" in this article)as the term of this relationship,which provides a new and more realistic perspective for theoretical analysis;discovered and proposed the bank's "Black Box Effect" theory;(2)found an optimal level of structural coefficients to reduce bank default risk,that is,increasing the weight of internal bonds in total compensation not only helps reduce the bank's default risk,it also helps to increase the banker's total compensation,the study to find the "Risk Cap",where the highest point was to maximize the decision return,the study to determine the optimal decision structure(investment options or more bonds)to maximize decision returns,during which it revealed the route of impact of executive compensation on bank default risk;(3)the practical significance is that the focus of empirical analysis in the future may focus on the entire term(that is,the entire term of the executive)rather than the annual salary indicator;(4)the research to find the determinants of structure,namely working hours,current age and tenure;explain the impact of pay frequency on pay structure and pay contracts;the optimal level of bank default risk was found to maximize the decision return;This decision model provides inspiration for further theoretical analysis,as it provides a way to bridge the relationship between executive compensation and bank risk.Based on this model,this article can explain how executive decisions affect decision-making returns and further affect default risk and future compensation.