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Chinese commercial banks: Benefits from foreign strategic investors?

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  • Cheng, Maoyong
  • Geng, Hongyan
  • Zhang, Junrui

Abstract

Introducing foreign strategic investors (FSIs) has been vital to China's bank ownership reforms. Using relevant data between 1995 and 2014, we employ the propensity score matching and difference in differences approaches to investigate the effects of FSIs on bank risks, including insolvency risk, capital risk, liquidity risk, asset quality, and credit risk. We make several findings. First, FSIs may significantly reduce bank risks, with the exception of insolvency risk. Second, the effects of FSIs on capital risk, liquidity risk, asset quality, and credit risk are weaker in state-owned banks than in non-state-owned banks. In addition, FSIs-assigned directors and managers could further decrease bank capital risk, liquidity risk, and credit risk, and improve bank asset quality. And directors and managers have weaker effects on bank risks in state-owned banks. Finally, bank risks exhibit no significant changes after FSI exits, and the effects of FSIs on bank risks do not differ between banks without and with exited FSIs. This suggests that spillover effects work more than monitoring effects in the context of China's financial background.

Suggested Citation

  • Cheng, Maoyong & Geng, Hongyan & Zhang, Junrui, 2016. "Chinese commercial banks: Benefits from foreign strategic investors?," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 147-172.
    • Handle: RePEc:eee:pacfin:v:40:y:2016:i:pa:p:147-172
    DOI: 10.1016/j.pacfin.2016.10.011
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    Cited by:

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    3. Paraskevi Katsiampa & Paul B. McGuinness & Jean-Philippe Serbera & Kun Zhao, 2022. "The financial and prudential performance of Chinese banks and Fintech lenders in the era of digitalization," Review of Quantitative Finance and Accounting, Springer, vol. 58(4), pages 1451-1503, May.
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    5. He, Dongwei & Ho, Chun-Yu & Xu, Li, 2020. "Risk and return of online channel adoption in the banking industry," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    6. Kumiko Okazaki, 2017. "Banking System Reform in China: The Challenges to Improving Its Efficiency in Serving the Real Economy," Asian Economic Policy Review, Japan Center for Economic Research, vol. 12(2), pages 303-320, July.
    7. Cheng, Maoyong & Zhao, Hong & Zhou, Mingming, 2020. "Foreign Strategic Investors, State Ownership, and Non-interest Activities: Evidence from China," Journal of Financial Stability, Elsevier, vol. 50(C).
    8. Cui, Di & Ding, Mingfa & He, Zhongda & Shen, Mi, 2022. "Restricted shares and CSR: Evidence from foreign strategic investors in China," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).

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    More about this item

    Keywords

    Foreign strategic investors; Bank risks; State ownership; China;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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