Governance, Efficiency and Risk Taking in Chinese Banking

53 Pages Posted: 3 Nov 2016

See all articles by Yizhe Dong

Yizhe Dong

University of Edinburgh Business School

Claudia Girardone

University of Essex - Essex Business School

Jing-Ming Kuo

University of Birmingham - Birmingham Business School

Date Written: July 1, 2016

Abstract

We employ a hand-collected unique dataset on banks operating in China between 2003 and 2011 to investigate the impact of board governance features (size, composition and functioning) on bank efficiency and risk taking. Our evidence suggests that board characteristics tend to have a greater influence on banks’ profit and cost efficiency than on loan quality. We find that the proportion of female directors on the board appears not only to be linked to higher profit and cost efficiency but also to lower traditional banking risk. Similarly, board independence is associated with higher profit efficiency of banks; while the opposite is found for executive directors and in the presence of dual leadership of the CEO/chairperson. Among the control variables, we found that liquidity negatively affects profit and cost efficiency, while positively affecting risk. Interestingly, we find some evidence of an incremental effect of specific board characteristics on efficiency for banks with more concentrated ownership structures and state-owned institutions; while for banks with CEO performance-related pay schemes the effect on efficiency when significant is usually negative. Our results offer useful insights to policy makers in China charged with the task of improving the governance mechanisms in banking institutions.

Keywords: Board Governance; Bank Efficiency; Asset Quality; Bank Ownership; Performance-Related Compensation; Chinese Banking Sector

Suggested Citation

Dong, Yizhe and Girardone, Claudia and Kuo, Jing-Ming, Governance, Efficiency and Risk Taking in Chinese Banking (July 1, 2016). British Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2863359 or http://dx.doi.org/10.2139/ssrn.2863359

Yizhe Dong (Contact Author)

University of Edinburgh Business School ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

Claudia Girardone

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 1206874156 (Phone)
+44 1206873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/ebs/staff/profile.aspx?ID=1045

Jing-Ming Kuo

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
University House
Birmingham, Birmingham B15 2TT
United Kingdom

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