What Explains the Low Profitability of Chinese Banks?

Garcı́a-Herrero, Alicia; Gavilá, Sergio; Santabárbara, Daniel

doi:10.2139/ssrn.1413123

Cited by 31 publications

(30 citation statements)

References 62 publications

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“…Furthermore, Garcia-Herrero et al (2009) point out that potential endogeneity could be a problem when assessing bank performance determinants. The more efficient banks may also find it easier to increase their customer base through a successful advertising campaign and could hire the most skilled personnel thereby enhancing profitability (Garcia-Herrero et al, 2009). The more efficient banks may also find it easier to increase their customer base through a successful advertising campaign and could hire the most skilled personnel thereby enhancing profitability (Garcia-Herrero et al, 2009).…”

Section: Robustness Checks: Controlling For Potential Endogeneitymentioning

confidence: 99%

Opening the Black Box on Bank Efficiency in China: Does Economic Freedom Matter?

Sufian

Habibullah

2011

Global Economic Review

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The paper provides, for the first time, empirical evidence on the impact of economic freedom on bank efficiency in a developing economy. We employ the Data Envelopment Analysis method to compute the efficiency of the Chinese banking sector during 2000Á2008. The empirical findings indicate that the inefficiency of the Chinese banking sector stems largely from scale rather than pure technical. By examining different dimensions of economic freedom, we find that not all are equally regressive on bank efficiency. We find that the impact of business freedom to be positive, implying that higher (lower) freedom for entrepreneurs to start businesses increases (reduces) bank efficiency. Similarly, monetary freedom is positively related to bank efficiency levels, indicating the importance of a stable and reliable monetary policy to business environment. On the other hand, the impact of financial freedom is negative, implying that higher (lower) financial freedom reduces (increases) the efficiency of banks operating in the Chinese banking sector.

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Section: Robustness Checks: Controlling For Potential Endogeneitymentioning

confidence: 99%

Opening the Black Box on Bank Efficiency in China: Does Economic Freedom Matter?

Sufian

Habibullah

2011

Global Economic Review

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“…Contrary to expectations that more banks may increase domestic banks' efficiency (Chen et al, 2005), Chinese banks may not have become more competitive after foreign banks enter China (Matthews and Zhang, 2010). García-Herrero et al (2009) believe that government intervention is still important in influencing Chinese banks' profitability as they meet public policy goals.…”

Section: Literature and Hypothesismentioning

confidence: 84%

“…However, it is difficult for the SOCBs to stop policy lending for the sake of social stability and other various government policies (e.g. Gamble, 2003;Gordon, 2003;Xu and Lin, 2007;García-Herrero et al, 2009). In addition, other factors, such as operational risks, the lack of expertise in managing loan portfolios and the lack of entrepreneurship (Heilmann, 2005) have contributed to the huge amount of NPLs of Chinese banks.…”

Section: Literature and Hypothesismentioning

confidence: 99%

“…Ferri, 2009;García-Herrero et al, 2009;Matthews and Zhang, 2010). By following the USA example of Resolution Trust Corporation during the savings and loans crisis in the 1980s, China established four AMCs to deal with the NPLs of the banks (Bonin and Huang, 2001;Xu and Lin, 2007).…”

Section: Literature and Hypothesismentioning

confidence: 99%

“…Gordon (2003), Kwong and Lee (2005) and Xiao (2006) investigate the NPLs and systematic risks. Ferri (2009), García-Herrero et al (2009) and Matthews and Zhang (2010) examine the NPLs and profitability and efficiency of the state-owned commercial banks (SOCBs) and the joint stock commercial banks (JSCBs). Kanagaretnam et al (2005) investigate whether bank managers use their discretion in estimating LLPs to communicate their private information (i.e.…”

Section: Introductionmentioning

confidence: 99%

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Bad debt provisions of financial institutions

Shan

2012

International Journal of Managerial Finance

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Access to this document was granted through an Emerald subscription provided by 353605 [] For AuthorsIf you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to investigate whether the level of bad debt provisions of financial institutions is affected by internal governance mechanisms (IGMs) from the perspective of the Type II principal-principal (PP) conflicts between the controlling shareholders and the minority shareholders. Design/methodology/approach -The authors' sample covers all listed financial institutions in China, comprising a panel data set of 139 firm-year observations covering 1999 to 2009. Within China's two-tier corporate governance context, the three IGMs -ownership structure, board of directors and supervisory board -are measured to examine the level of bad debt provisions. Findings -The findings suggest that state ownership and legal person ownership are negatively related to the level of bad debt provisions, but board size reveals a positive association. Other factors including foreign ownership, independent directors, board meeting, supervisory board size and supervisory board meeting were found to have no impact. Practical implications -The spirit of corporate governance reform has not been transferred to financial institutions sufficiently. The board of directors and supervisory board actually act the roles of "window dressing" or "rubber stamp" within the current two-tier system. From the Type II PP perspective, the controlling shareholders are found to moderate the conflicts between other parties but they still expropriate the interests of minority shareholders and are the real beneficiaries of recent reforms. Thus, further financial reforms seem necessary in China. Originality/value -The paper provides an empirical analysis of factors that underlie IGMs during an important period of regulatory change and organizational reform, and fills a literature gap concerning the effectiveness and efficiency of financial institutions.

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Beyond clusters: How regional geographic signature affects firm value and risk

Bell

Deng²

2013

Can J Adm Sci

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Existing studies examining how geography affects firm outcomes primarily consider how clusters affect performance. We examine how regional geographic signature-industry clusters, regional economic diversity, region size, and regional innovativeness-affects firm value and systematic and unsystematic risk using a sample of publicly traded American bank holding companies. After controlling for endogeneity of clusters, we find that locating in large and innovative regions enhances firm value, while locating in clusters and diversifying into many regions reduces value. Clusters reduce systematic risk and increase unsystematic risk, while economic diversity and innovativeness increase systematic risk. Thus, geographic locales exert multifaceted influences on value and risk, and we need to consider more than industry clusters and geographic diversification when considering geographic influence. Copyright © 2013 ASAC. Published by John Wiley & Sons, Ltd. JEL Classifications: M10, R12Keywords: geographic signature, cluster, performance, risk, banking Résumé Les travaux courants sur l'influence que la géographie a sur la performance de l'entreprise examinent surtout l'impact des concentrations sur la performance. Cette étude s'appuie sur un échantillon de sociétés de portefeuille bancaire américaines cotées en bourse pour se pencher sur la manière dont la signature géographique régionale-concentrations de l'industrie, diversité de l'économie régionale, taille de la région et capacité de la région à innover-influe sur la valeur de la firme et sur le risque systématique et non systématique. Après avoir neutralisé le caractère endogène des concentrations, l'étude révèle que les firmes installées dans de grandes régions innovantes gagnent en valeur tandis que les firmes installées dans les concentrations et diversifiées par régions en perdent. Les concentrations réduisent le risque systématique et augmentent le risque systématique, tandis que la diversité de l'économie et l'innovativité augmente le risque non systématique. Il s'ensuit que les milieux géographiques exercent des influences multiples sur la valeur et le risque. Par conséquent, dans l'étude de l'influence géographique, il faut aller au-delà des concentrations de l'industrie et de la diversification géographique.

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What Explains the Low Profitability of Chinese Banks?

Cited by 31 publications

References 62 publications

Opening the Black Box on Bank Efficiency in China: Does Economic Freedom Matter?

Opening the Black Box on Bank Efficiency in China: Does Economic Freedom Matter?

Bad debt provisions of financial institutions

Beyond clusters: How regional geographic signature affects firm value and risk

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