After crisis the incentive contracts of commercial banks in China: A study based on Holmstrom-Milgrom model

Abstract

The crisis in 2008 had a far-reaching influence on the economy and also changed conditions of incentive. Studying the incentive contracts is helpful commercial banks in China to improve the corporate governance in a bid for higher competitiveness in new market circumstances globally. In the framework of Holmstrom-Milgrom model (1991), analyze the multitasking principal-agent relationship and then propose an optimal solution for equalization of incentive contracts. The results indicate that when the supervisory department and social public are unable to achieve the optimal conditions, the administrators pursue profits increasingly. It leads to fewer endeavors to the risk control and social responsibility. Besides the commercial banks insist on incentive executives perfectly, the supervision should restrain more effectively and the incitement of public should be more obviously.