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The Empirical Study on the Top-management Compensation and Performance of China’s Listed Banks

Author: WuHuiMian
Tutor: HuangJuan
School: Southwestern University of Finance and Economics
Course: Accounting
Keywords: listed banks top-management compensation performance empirical study
CLC: F272.9
Type: Master's thesis
Year: 2013
Downloads: 109
Quote: 0
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Abstract


BACKGROUNDSince the global financial crisis in2008, China’s domestic enterprises with large-scale, especially the financial industry, compensation of its executives have often been exposed, not only become the focus of the media and the public, but also of the government. As the banking executive got such an unusual high pay, China’s Ministry of Finance promulgated a series of policies since February of2009, in order to regulate the management of executive’s pay in the banking industry.The reason why these bank executive’s annual salary stirred up such a huge social repercussions, is that its annual salary have not closely associated with bank performance, even there were operational problems, executive’s pay will never decline. Especially in some China’s banks who is State-owned, they rely on the government policy support to get the high level of performance, the Executives have not played a role in getting the performance. Therefore, whether the executive’s compensation of China’s listed banks has a relationship with its performance? And whether the executive’s compensation system made progress? These problems show the theoretical and practical meaning of the research.PURPOSEThe development and progress of the banking industry will promote the development and progress of China’s financial system and even our national economy, and contribute to set a stable and efficient financial system, and raise its ability to resist risks. However, in order to achieve the goal, and to improve the performance of China’s banking industry, need to optimize the corporate governance structure of China’s bank, and a high-quality, efficient senior management will be essential. Therefore, an empirical study on executive pay and bank performance of China’s listed banks, and to analyze the effect of bank executives incentive pay, then on this basis, to optimize the corporate governance structure of China’s banking and to improve China’s banking executive pay incentive system is the purpose of this study.MAIN CONTENTThe paper is divided into5chapters, and every chapter’s content are as follows:Chapter1:introduction. In this chapter, introduces the research background and the topics of theoretical and practical significance, and tell the need of study the executive compensation and bank performance of China’s listed banks, then illustrates the basic framework of the research, and the research methods, the main contribution and shortage are also discussed.Chapter2:literature review. This chapter defines some key words of the executive compensation and bank performance of China’s listed banks firstly. Then review the domestic and foreign scholars on executive pay and bank performance, and to provide a basis for later empirical study.Chapter3:theoretical basis. Mainly elaborate the Principal-agent theory, corporate governance theory, Human capital theory and the theory of motivation. Then explain the internal mechanism between executive’s compensation and bank performance, in order to lay the theoretical foundation for the later empirical assumptions. At the same time, make an analysis of the status quo of executive pay in China’s listed banks.Chapter4:empirical research and analysis, the key part of the paper. Firstly, determine the sources of the sample, and select the sample according to certain criteria. Secondly, on the basis of the analysis of the theoretical analysis and mechanism between executive’s compensation and bank performance, proposed three hypotheses. Thirdly, this chapter selected7variables of bank executive pay and bank performance, like COM, ROA, ROE, EPS, CAR, CCAR and BAR. Finally, this chapter verified the hypothesis that proposed in the Preamble of the paper by the correlation between variables test, Granger causality test and regression analysis.Chapter5:conclusion and prospects. First, the conclusions of this study are summarized. The relationship between executive compensation and bank performance of China’s listed banks has been determined in both the theory and practice part. Secondly, on the basis of the conclusions of the study, some suggestions have been put on the corporate governance structure, executive compensation incentives and bank performance evaluation of China’s listed banks for improvement. Finally, the limitations of this study and future research prospects are discussed.CONCLUSIONThrough the theoretical analysis and empirical research, this paper explore the intrinsic relationship of the executive pay and bank performance of China’s listed banks, and get the following conclusions:(1) Executive compensation is related to bank performance in China’s listed banks, but there is no significant linear relationship, the positive correlation is not high.(2) Executive compensation and the bank’s capital adequacy ratio, is a negatively correlated in China’s listed banks.(3) In China’s listed bank, executive compensation and the bank’s BAR ratio, is a negatively correlated.(4) There is a correlation between earnings per share and return on total assets of executive compensation of China’s listed banks.Based on the above conclusions, the capital adequacy ratio is inversely related to bank performance, does not support the hypothesis2, show that the bank pay compensation to executive has considered the risk factors, but not as a basis to determine their remuneration, so a combining of profitability and security as executive compensation incentives. And the degree of positive correlation between executive compensation and bank performance of listed banks in China is not high, tell us that executive pay incentive system reform, especially the improvement of the long-term incentive plan is needed.CONTRIBUTIONThe main contribution of this paper is as follows:Firstly, in the measure of bank performance, taking a full account of the characteristics of the high debt management in banks. The performance of the commercial banks is reflected not only in its profitability, but also in its mobility and security. So in the measures of bank’s performance, fully reflects the differences between the commercial banks and other enterprises.Secondly, in the empirical analysis, considering the situation that as the bank performance improved, executive compensation will be increased accordingly, the listed banks are likely to offer this year’s executive compensation refer to bank performance in the previous year, therefore, in this paper, a Granger causality test between the executive compensation and the performance of the banks lag variable data has been taken.Thirdly, using the empirical research method to analyze the relationship between executive compensation and bank performance of China’s12listed banks in Shanghai and Shenzhen A-shares in the past five years, get the intrinsic link between compensation and performance of China’s banking industry, then based on the conclusions of this study, putting some suggestions to strengthen the executive compensation management and to improve bank performance in China’s listed banks in the future.

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