A Note on Foreign Bank Entry and Bank Corporate Governance in China
Fordham University; Bank of Finland
Bangor Business School
April 23, 2012
BOFIT Discussion Paper No. 8/2012
China employs a unique foreign bank entry model. Instead of allowing full foreign control of domestic banks, foreign investors are only permitted to be involved in the local banks as minority shareholders. At the same time, foreign strategic investors are expected to commit to bank corporate governance improvement and new technology support. In this context, the paper examines the effect of foreign strategic investors on Chinese bank performance. Based on a unique data set of bank ownership, performance, corporate governance and stock returns from 2003 to 2007, our regression and event study analysis results suggest that active involvement of foreign strategic investors in bank management have improved the corporate governance model of Chinese banks from a control based model to a market oriented model, and accordingly have promoted bank performance.
Number of Pages in PDF File: 24
Keywords: China, foreign market entry, corporate governance
JEL Classification: G21, G28, G34, F23working papers series
Date posted: May 2, 2012
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