A Study On The Top-management Incentive And Restraint Mechanism In The Chinese Financial Industry

Since the implement of the full liberalization of China’s financial sector in2006,a largenumber of foreign financial corporations enter the Chinese market, leading to increasedcompetition in the domestic financial sector. Compared with foreign corporations, thecorporate governance of China’s financial corporations are not mature enough, lack theeffective internal governance mechanisms. As an important mechanism of corporategovernance, the incentive and restraint mechanisms of the manager, is a necessary foundationfor the rapid and healthy development of the financial corporations.This paper starts from the incentive-restrictive mechanism, and focuses on the managersof Chinese financial corporations. Then the paper makes an empirical study of the managers’compensation and the performance of the financial corporations, and gives the discussion ofthe incentive-restrictive mechanisms based on the principal-agent theory. Based on therelatively mature incentive and constraint mechanism of the financial corporations’ executives,this article put forward relevant proposals in China’s financial corporations.There are six parts in this paper. The first part introduces the research background, maincontents and structure of the article. Based on the incentive mechanism theory in economics,the second part analyses the special nature of the financial corporations, reviewed thetheoretical and empirical studies on the incentive and restrictive mechanism of executives ofthe financial corporations, and compared the mechanisms of the international financialcorporations. The third part conducted a descriptive analysis of the current performance of theincentive and restraint mechanisms of China’s financial corporations according to data andgraphs. The fourth part uses the data of financial corporations, makes an empirical regressionof the incentive and restraint mechanisms of China’s financial corporations. Based on theprincipal-agent theory, a long-term economic incentive model is built in the fifth part toanalyze the infection of different economic incentives to the behavior of the financialcorporations’ executives. In the sixth part, some suggestions are made to improve theincentive and restraint mechanisms of financial corporations of China.