Impact of Foreign Bank Entry on the Performance of Chinese Banks

China & World Economy, Vol. 17, Issue 3, pp. 102-121, May-June 2009

20 Pages Posted: 16 Jun 2009

See all articles by Chung-Hua Shen

Chung-Hua Shen

National Taiwan University - Department of Finance

Chin-Hwa Lu

affiliation not provided to SSRN

Meng-Wen Wu

affiliation not provided to SSRN

Abstract

This study investigates how foreign bank/investor penetrations influence local bank performance in China. At the country level, foreign bank penetration is proxied by MacroFP, measured by the percentage of banks with foreign strategic investors (FSI) among total banks. At the bank level, foreign bank penetration is proxied by MicroFP, measured by the percentage shareholding of FSI in a bank. When foreign bank penetration is proxied by MacroFP, it is found to improve the profitability of local banks but not to reduce costs. Next, when foreign bank penetration is proxied by MicroFP, it is found to affect neither profitability nor costs. In sum, the present study demonstrates that the opening-up policy is correct from a macro perspective. However, for banks that have introduced FSI, determining the reasons for improvements in performance being inhibited is more important than releasing more shares to foreign investors.

Suggested Citation

Shen, Chung-Hua and Lu, Chin-Hwa and Wu, Meng-Wen, Impact of Foreign Bank Entry on the Performance of Chinese Banks. China & World Economy, Vol. 17, Issue 3, pp. 102-121, May-June 2009, Available at SSRN: https://ssrn.com/abstract=1410305 or http://dx.doi.org/10.1111/j.1749-124X.2009.01153.x

Chung-Hua Shen

National Taiwan University - Department of Finance ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

Chin-Hwa Lu

affiliation not provided to SSRN ( email )

No Address Available

Meng-Wen Wu

affiliation not provided to SSRN ( email )

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