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The Effects of Public Listing on the Performance of Banks in China

  • Bin Liu

    (CCB International (Holdings) Limited and Hong Kong Institute for Monetary Research)

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    Chinese banks have been pushing further commercialization, corporate restructuring and public listing in recent years. The ten largest commercial banks in China have all been listed, among which nine went public in the past decade. This paper conducts an empirical investigation on how public listing affects the performance of Chinese banks. Particularly, we examine the pre-listing restructuring effect and the different effects of public listing locations such as Shanghai and Hong Kong, which have not received much attention in the literature. Our sample covers all the 16 listed banks in China and 17 other unlisted banks over the period of 1997-2008. Using a pooled cross-section regression, we compare three modified models built upon Berger et al. (2005) to consider the following three effects: 1) the static governance effect; 2) the selection effect and 3) the dynamic effect. We found that the public listing effect should be modeled as a dynamic process rather than a sudden structural change at a cut-off point, thus it is important to compare the banks' performance during the pre-listing restructuring period with the after-listing period. Moreover, the public listing in Hong Kong is found to have more positive and persistent effects on banks' performance in terms of both profitability and financial safety than the public listing in Mainland China. We also provide some tentative explanations for such different effects on banks' performance, and discuss the implications to both policy makers and market participants.

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    File URL: http://www.hkimr.org/uploads/publication/72/ub_full_0_2_271_wp-no-07_2011-final-.pdf
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    Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 072011.

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    Length: 36 pages
    Date of creation: Feb 2011
    Date of revision:
    Handle: RePEc:hkm:wpaper:072011
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    1. Berger, Allen N. & Clarke, George R.G. & Cull, Robert & Klapper, Leora & Udell, Gregory F., 2005. "Corporate governance and bank performance: A joint analysis of the static, selection, and dynamic effects of domestic, foreign, and state ownership," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2179-2221, August.
    2. Berger, Allen N. & Klapper, Leora F. & Martinez Peria, Maria Soledad & Zaidi, Rida, 2008. "Bank ownership type and banking relationships," Journal of Financial Intermediation, Elsevier, vol. 17(1), pages 37-62, January.
    3. Hsiu-Ling Wu & Chien-Hsun Chen & Hui-Ling Lin, 2009. "Can a stock market listing help to improve the operational performance of China's banks?," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 12(1), pages 13-28.
    4. Jiang, Chunxia & Yao, Shujie & Zhang, Zongyi, 2009. "The effects of governance changes on bank efficiency in China: A stochastic distance function approach," China Economic Review, Elsevier, vol. 20(4), pages 717-731, December.
    5. Hsiu-Ling Wu & Chien-Hsun Chen & Mei-Hsuan Lin, 2007. "The Effect of Foreign Bank Entry on the Operational Performance of Commercial Banks in the Chinese Transitional Economy," Post-Communist Economies, Taylor & Francis Journals, vol. 19(3), pages 343-357.
    6. Chen Chien-Hsun & Shih Hui-Tzu, 2004. "Initial Public Offering and Corporate Governance in China's Transitional Economy," NBER Chapters, in: Governance, Regulation, and Privatization in the Asia-Pacific Region, NBER East Asia Seminar on Economics, Volume 12, pages 185-210 National Bureau of Economic Research, Inc.
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