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Does the Chinese banking system benefit from foreign investors?

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  • Garcia-Herrero, Alicia
  • Santabárbara, Daniel

Abstract

We find empirical evidence that the Chinese banking system has benefited from the entry of foreign investors through higher profitability and increased efficiency of the banking system. Foreign participation, which consists of a minority stake in a Chinese bank (in con-trast to the typical pattern in emerging countries), appears to be most effective when the foreign bank acts as a strategic investor. Purely financial investors contribute little, if any-thing, to bank performance. Key words: China, banking system, foreign participation JEL classification: G21, G28 1

Suggested Citation

  • Garcia-Herrero, Alicia & Santabárbara, Daniel, 2008. "Does the Chinese banking system benefit from foreign investors?," BOFIT Discussion Papers 11/2008, Bank of Finland, Institute for Economies in Transition.
  • Handle: RePEc:bof:bofitp:2008_011
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    References listed on IDEAS

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    1. Martinez Peria, Maria Soledad & Mody, Ashoka, 2004. "How Foreign Participation and Market Concentration Impact Bank Spreads: Evidence from Latin America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 511-537, June.
    2. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    3. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
    4. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    5. Berger, Allen N. & Bonaccorsi di Patti, Emilia, 2006. "Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry," Journal of Banking & Finance, Elsevier, vol. 30(4), pages 1065-1102, April.
    6. Anup Agrawal & Charles R. Knoeber, "undated". "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders (Revision of 29-94)," Rodney L. White Center for Financial Research Working Papers 8-96, Wharton School Rodney L. White Center for Financial Research.
    7. Anup Agrawal & Charles R. Knoeber, "undated". "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders (Revision of 29-94)," Rodney L. White Center for Financial Research Working Papers 08-96, Wharton School Rodney L. White Center for Financial Research.
    8. Agrawal, Anup & Knoeber, Charles R., 1996. "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 377-397, September.
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    Citations

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    Cited by:

    1. García-Herrero, Alicia & Gavilá, Sergio & Santabárbara, Daniel, 2009. "What explains the low profitability of Chinese banks?," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 2080-2092, November.
    2. Ying Xu, 2011. "Foreign Strategic Investment and Banking Efficiency in China," Chapters,in: China’s Economy in the Post-WTO Environment, chapter 6 Edward Elgar Publishing.
    3. Pessarossi, Pierre & Godlewski, Christophe J. & Weill, Laurent, 2012. "Foreign bank lending and information asymmetries in China: Empirical evidence from the syndicated loan market," Journal of Asian Economics, Elsevier, vol. 23(4), pages 423-433.
    4. Pessarossi, Pierre & Godlewski, Christophe J. & Weill, Laurent, 2010. "Foreign bank lending and information asymmetries in China," BOFIT Discussion Papers 20/2010, Bank of Finland, Institute for Economies in Transition.
    5. Dan Luo & Shujie Yao, 2010. "World financial crisis and the rise of Chinese commercial banks: an efficiency analysis using DEA," Applied Financial Economics, Taylor & Francis Journals, vol. 20(19), pages 1515-1530.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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