Principal-Agency Problem And Corporate Governance Reform In State-owned Banking

The banking industry is at the strategically important position inthe national economy. Our State-owned Banks suffer poor management andbad profit-earning for many years under the solely state-owned ownership.After 2006, the Banking industry in our country opens to the foreigncapital; the state-owned bank will be faced with severe competition fromforeign big banks. How to enhance the state-owned bank's profit-earningcapability and improve its management, enabling it to compete with itsWestern counterpart, is an urgent task in front of us. In the article,The principle-agency theory is used to analyze the principle-agencyproblem in the state-owned banking. With the aim to overcome the problemand enhance the profit-earning capability, the paper concentrates on theestablishment of good corporate governance in a state-owned bank.The form of an enterprise underwent three stages: soleproprietorships, partnership, corporations. The ownership and themanagement right also gradually separate along with it. While theseparation brings the benefit of scale and the benefit of labor division,it also leads to agency cost. The vacancy of the owner and the longprinciple-agency chain, which existed in the state-owned banks, has leadto severe principle-agency problem. To reduce the agency cost, perfectcorporate governance for bank must be established.Corporate governance is a system to coordinate the relationshipbetween shareholder and others with benefit in the company. Its frameworkis composed of general meeting of shareholders, board of directors,general manager, and board of supervisors. Corporate governance can bedivided into two patterns: British-American patter and German-Japanpattern. The shareholders in British American pattern owns smallpercentage of the stocks, prefer 'vote with their feet'. The characterof the German Japan pattern is the legal person owns stocks or the legalperson owns stocks mutually, the shareholder directly 'votes with theirhand'. The article approves the viewpoint that the aim of the corporategovernance is to purse the maximization of shareholder's profit.Internal mechanism in corporate governance includes drivemechanism, surveillance mechanism, internal control mechanism anddecision-making mechanism. Drive mechanism includes: the reward drivemechanism, the surplus claim and the surplus control drive mechanism andso on. Now State-owned Bank makes mainly use of the control-power-income,with money-return as auxiliary. The reform direction is to increases themoney income, reduces the control power income. Internal surveillancemechanism includes the general meeting of shareholders' surveillance,board of director's surveillance, board of supervisor's surveillance. The internal control mechanism is that banks make controls on the riskthrough a series of systems, procedure and method. The decision-makingmechanism is an arrangement about the division of decision-making powerbetween all governing bodies. It includes General meeting ofshareholders' decision-making, board of director's decision-making andmanager level decision-making.The exterior mechanism in bank corporate governance includes: Companydominated right market, information disclosure mechanism, banksupervising and managing mechanism, exterior restraint mechanism,correlated law and rules and regulations restraint and so on. The companydominated right market may be divided into the competition on attorneyright and the enterprise merger and acquisition. The comprehensiveaccurate information disclosure is the basis of effective supervising andmanaging and the market restraint. At present inour country, State-ownedBank information disclosure is also insufficient s in content, theprocedure and so on. In the bank supervising and managing practice, wemust deal with three relations properly: the relations between guardingrisk and the promoting development, the relations between behaviorsupervising and managing and the capital supervising and managing, therelations between promoting the bank to construct itself and thesupervising and managing not offside relations. The exterior restraintin banking corporate governance includes manager market restraint, stockmarket's restraint, as well as creditor to bank restraint.The Chinese State-owned Bank reform has its own characteristic, suchas that the country is undertaking the responsibility to the state-ownedbank reform; the governance in government needs to improve and so on. Thekey of State-owned Bank reform in our country is to solve the propertyright vacancy.The research methodsused in the paper include: (1) the combinationof theoretical analysis with the research on reality. Such as the analysison the management of state-owned bank with the principle-agency theory.(2) The combination between standard analyses with the real diagnosisanalysis. The paper puts forward the improving proposal on the basis ofpointing out the drawbacks in the banking corporate governance. (3)Comparative analysis method. The banking corporate governance in Chinaand in western country is compared to make clear the viewpoint.