Bank Ownership and Efficiency in China: What Lies Ahead in the World's Largest Nation?

50 Pages Posted: 12 Oct 2007

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Mingming Zhou

University of Colorado, Colorado Springs - College of Business

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Date Written: 2007

Abstract

China is reforming its banking system, partially privatizing and permitting minority foreign ownership of three of the dominant 'big four' state-owned banks. This paper seeks to help predict the effects of this change by analysing the efficiency of virtually all Chinese banks in the years 1994-2003. Our findings suggest the big four banks are by far the least efficient and foreign banks the most efficient while minority foreign ownership is associated with significantly improved efficiency. We present corroborating robustness checks and offer several credible mechanisms through which minority foreign owners can increase Chinese bank efficiency. These findings suggest that minority foreign ownership of the big four is likely to significantly improve performance.

Keywords: China, foreign banks, efficiency, foreign ownership

JEL Classification: G21, G28, G34, F23

Suggested Citation

Berger, Allen N. and Zhou, Mingming and Hasan, Iftekhar, Bank Ownership and Efficiency in China: What Lies Ahead in the World's Largest Nation? (2007). Bank of Finland Research Discussion Paper No. 16/2007. Available at SSRN: https://ssrn.com/abstract=1020583 or http://dx.doi.org/10.2139/ssrn.1020583

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Mingming Zhou

University of Colorado, Colorado Springs - College of Business ( email )

1420 Austin Bluffs Parkway
Colorado Springs, CO 80933-7150
United States
1-719-255-5153 (Phone)

Iftekhar Hasan (Contact Author)

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

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