Governance, Based On The Principal - Agent Theory, The State-owned Commercial Banks

Principal-agency in modern enterprise system shows that the separation of enterpriser andmanager has created separating of power which the surplus to be come down on and power whichsurplus control. Asymmetric information happens, and owing to information asymmetric theprincipal of enterprise is faced with the problem how to supervise and encourage the agent toserve for self,and the payout to solve this problem is agency cost. Moreover, the enterprise is thecorps activity and it is hard to define everyone contribution respectively;therefore, it can give riseto the problem of "loafs on the job". The proprietary rights belongs to all the people in thestate-owned commercial banks,but nobody like individual or juridical person can implementproprietary rights and undertake any loss duty. Thus, the problem "vacant position of proprietors"is appeared. At the same time, the agent can maximize his interest with the aid of the informationadvantage while sacrificing principals' interest,and it is difficult for the principal to know thedifferentiation of the objectives. Thus, the problem of "insider control" occurs.There are multi-layer principals in the state-owned commercial banks, and there is no realfunction for the restriction of agent due to the excessively long chain of principals. In order to urgethe objective of agent approaching to that of the principal and achieve the maximization of theenterprise value and also guarantee the interest of agent, it is very important to build up suitablemechanisms of excitation and restriction. State-owned commercial banks have faced increasinglycompetitive pressure and it is far away for the reforms since China joined WTO. It is veryimportant to set up and improve the mechanism of excitation and restriction at the presentsituation of imperfect corporate governance.First, it indicates the problems of principal–agency in the state-owned commercial banks,introducing the four relations between government and top manager, higher-level manager andlower-level manager, managers and enterprise manager, and depositor and bank manager. Then,we introduce a model to make further understanding the problems of principal-agency ofstate-owned commercial banks. In the following part, we focus on the setting up of incentive andrestraining mechanisms in order to solve above problem and improve corporate governance.Finally, it gives some suggestion on how to improve principal-agency of state-owned commercialbanks.