The Relationship Between Managers’ Incentive And Bank Risk Of Chinese Listed Banks

Ownership and management separate in modern business, and the relationshipbetween the owner and operator is the principal-agent. Also because between the ownerand operator exists information asymmetry and the contract between the owner andoperator is incomplete, so cause agency problems. The agent in the managementprocess may only pursue their own interest which contraries to the interest of the owner,so the owner incentive for the operator in order to reduce the agency problems andachieve their maximum benefits.Banks as special enterprises which operate risk incentives may also affect their risk.In the foreign country the research about bank incentives and risk is more, but theconclusion is not very consistent, and domestic research on this area is still relativelysmall. In this paper, we use the data of the listed banks in China to make an empiricalanalysis between the bank risk and management incentive. Management incentives inChinese bank are mainly cash incentives and equity incentives. Bank risk we useZ-score, where Z-score is different from the general financial Z-score, z-score iscalculated by the measure of bank failures indicator. The study found that the managersholding equity can reduce the bank risk effectively, but the relationship between thecompensation and bank risk is not very significant. The stated-owned banks have theirown peculiarities, and the administrative incentives may be greater for the managers,which cause other incentives’ efficiency low even invalid.At present the banks’ incentive in China is single, and the pay system isunreasonable which will increase the banks’ risk. And the equity incentive does’t fullyrespect the role of incentive. While the state-owned banks’ incentives separate fromperformance and the administrative incentive is not benefit for the long-termdevelopment. So the banks’ managers’ incentives not only affect the banks’ risk but alsoaffect the banks’ long-term, stable, and healthy development. The research about theincentive and bank risk not only necessary but also has good practical significance.