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Does bank ownership increase firm value? Evidence from China

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  • Lin, Xiaochi
  • Zhang, Yi
  • Zhu, Ning

Abstract

Direct bank ownership of company shares is believed to benefit borrowing companies in developed markets. However, little is known about how such bank relationship works in emerging markets, where the relative costs and benefits of such practice become less straightforward due to loose institutional background and weak governance. Utilizing novel data on bank equity ownership and board structure of listed companies in China, one of the leading emerging markets, we find that: 1. banks hold considerable shares of listed companies; 2. banks appoint board members through equity holdings; 3. bank ownership promotes company access to bank capital; 4. companies with banks as leading shareholders witness relatively poor operating performance. Such results are robust with alternative performance measures, industries, and sample periods. Further analysis indicates that inefficient investments resulting from bank ownership are responsible for the disappointing performance. Our results provide new insights to the debate regarding the merits of bank equity ownership of companies and emphasize how banking and corporate finance behave differently in emerging markets due to their unique institutional background

Suggested Citation

  • Lin, Xiaochi & Zhang, Yi & Zhu, Ning, 2009. "Does bank ownership increase firm value? Evidence from China," Journal of International Money and Finance, Elsevier, vol. 28(4), pages 720-737, June.
  • Handle: RePEc:eee:jimfin:v:28:y:2009:i:4:p:720-737
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Joseph P. H. Fan & Li Jin & Guojian Zheng, 2016. "Revisiting the Bright and Dark Sides of Capital Flows in Business Groups," Journal of Business Ethics, Springer, vol. 134(4), pages 509-528, April.
    2. Ahmet Inci, 2011. "Capital Investment, Earnings, and Annual Stock Returns: Causality Relationships In China," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 1(2), pages 95-125, December.
    3. Kashif Rashid & Seep Nadeem, 2014. "The Role of Ownership Concentration, its Types and Firm Performance: A Quantitative Study of Financial Sector in Pakistan," Oeconomics of Knowledge, Saphira Publishing House, vol. 6(2), pages 10-61, June.
    4. António Pedro Soares Pinto & Mário Gomes Augusto & Pedro M. Gama, 2010. "Bank Relationships And Corporate Governance: A Survey Of The Literature From The Perspective Of Smes," Portuguese Journal of Management Studies, ISEG, Universidade de Lisboa, vol. 0(1), pages 65-85.
    5. repec:pdc:jrnbeh:v:13:y:2017:i:2:p:142-151 is not listed on IDEAS
    6. Lu, Zhengfei & Zhu, Jigao & Zhang, Weining, 2012. "Bank discrimination, holding bank ownership, and economic consequences: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 341-354.
    7. repec:bla:acctfi:v:57:y:2017:i::p:185-210 is not listed on IDEAS
    8. repec:eee:ecofin:v:44:y:2018:i:c:p:235-253 is not listed on IDEAS
    9. repec:eee:riibaf:v:42:y:2017:i:c:p:784-793 is not listed on IDEAS
    10. repec:eee:riibaf:v:42:y:2017:i:c:p:285-294 is not listed on IDEAS
    11. Luo, Wei & Zhang, Yi & Zhu, Ning, 2011. "Bank ownership and executive perquisites: New evidence from an emerging market," Journal of Corporate Finance, Elsevier, vol. 17(2), pages 352-370, April.
    12. Kun Wang & Greg Shailer, 2015. "Ownership Concentration And Firm Performance In Emerging Markets: A Meta-Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 29(2), pages 199-229, April.
    13. Fan, Joseph P.H. & Huang, Jun & Zhu, Ning, 2013. "Institutions, ownership structures, and distress resolution in China," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 71-87.
    14. Pan, Xiaofei & Tian, Gary Gang, 2015. "Does banks’ dual holding affect bank lending and firms’ investment decisions? Evidence from China," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 406-424.
    15. Yishu Fu & Shih-Cheng Lee & Lei Xu & Ralf Zurbruegg, 2015. "The Effectiveness of Capital Regulation on Bank Behavior in China," International Review of Finance, International Review of Finance Ltd., vol. 15(3), pages 321-345, September.

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