An Empirical Study Of Executive Compensation Effect On The Efficiency Of Commercial Banks

As the efficiency of commercial banks affect the commercial bank’s corecompetitiveness, so the commercial bank efficiency research has been praised byscholars. Predecessors have done a lot of work about commercial bank efficiencymeasure and empirical study of commercial bank efficiency influencing factors..Butfacing about the hot discussion executive compensation problem, article from aquantitative point of view to analyze the relationship between executive pay and theefficiency of commercial banks is relatively less.Whether executive pay is the true efficiency of commercial bank efficiency？This article start with this point of view, first, theoretical analysis explained from thepoint of the principal-agent executive pay impact the operations of commercialbanks, Followed by the use of non-parametric DEA method to measure in five years23Chinese banks’ cost efficiency, technical efficiency, pure technicalefficiency,scale efficiency and allocative efficiency. And take advantage of thepanel data model. On the basis of introducing the risk of commercial banks, assetallocation the control variables, we added executive pay to the explanatory variables,to study the statistical relationship between executive pay and the efficiency ofcommercial banks, From an empirical point of view, we analysis the affect ofexecutive compensation on the efficiency of commercial banks.By comparison between the years of commercial banks and various efficiencyvalues this article found that, state-owned banks’ scale efficiency is low, we shouldwithdrawn certain unprofitable branches, reduce management cost, in order to improve the efficiency of scale. The joint-stock and city banks should reasonablycontrol the expansion of the scale, maintain its high scale efficiency. Citycommercial banks should be targeted to improve the management technical.From the regression results of the commercial banks efficiency, This paperfound that the regression model fitting degree has been significantly improved byadding executive pay to explanatory variables,. And analysising the degree ofcorrelation between executive compensation and commercial banks efficiency value.From the results, there have significant correlation between executive pay and costefficiency, pure technical efficiency and allocative efficiency. Reasonable executivecompensation contribute to improve the efficiency of commercial banks. So thecorrelation degree of executive pay and performance of the commercial should bestrengthened through stock options and other long-term pay incentives, increase thedegree of risk assumed by the executives, more concerned with the long-terminterests, avoid short-term behavior.