A Note on Foreign Bank Entry and Bank Corporate Governance in China

24 Pages Posted: 2 May 2012 Last revised: 21 Aug 2015

See all articles by Iftekhar Hasan

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Ru Xie

University of Bath, School of management

Date Written: April 23, 2012

Abstract

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.

Keywords: China, foreign market entry, corporate governance

JEL Classification: G21, G28, G34, F23

Suggested Citation

Hasan, Iftekhar and Xie, Ru, A Note on Foreign Bank Entry and Bank Corporate Governance in China (April 23, 2012). Emerging Markets Finance and Trade, Vol. 49, No. 2, 2013; BOFIT Discussion Paper No. 8/2012. Available at SSRN: https://ssrn.com/abstract=2049777 or http://dx.doi.org/10.2139/ssrn.2049777

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

Ru Xie

University of Bath, School of management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

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