Corporate governance and bank performance in China

Abstract

This paper examines the effects of corporate governance on bank performance in China over the period 1995–2008. Bank performance has improved significantly and the mean profit efficiency level is estimated at 61%. The results suggest that differences in corporate governance have significant impacts on bank performance: banks with majority foreign ownership are most profitable while banks with majority state ownership are most unprofitable. We find no evidence that foreign minority ownership in domestic banks improves performance. Banks with more dispersed ownership are found to be more profit efficient.

Keywords:

• SFA
• Chinese banking
• corporate governance

JEL Classifications:

• C23
• G21
• G32

Notes

This research is supported by Ministry of Education of China, Humanities and Social Science Planning Project (No. 09yja790162). The views expressed here do not represent those of sponsors and the People of Bank of China, but solely of the authors.

1. Namely the China Development Bank, the Import-Export Bank of China, and the Agricultural Development Bank of China.

2.  are rescaled so that each x_n term falls into the interval [0,2π]. Following Berger and Mester (1997), each end of the interval [0,2π] are cut off by 10% so that x_n spans the interval of to reduce approximation problems near the endpoints. According to Berger and Mester (1997), the rescaling formula is where [a, b] is the range of over the entire 11-year time interval, and .

Additional information

Notes on contributors

Chunxia Jiang

This research is supported by Ministry of Education of China, Humanities and Social Science Planning Project (No. 09yja790162). The views expressed here do not represent those of sponsors and the People of Bank of China, but solely of the authors.