Impact of Foreign Bank Entry on the Performance of Chinese Banks |
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Authors: | Chung-Hua Shen Chin-Hwa Lu Meng- Wen Wu |
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Affiliation: | Professor, Corresponding Author, Department of Finance, National Taiwan University, Taiwan. Email:;;Associate Professor, Department of International Business, China University of Technology, Taiwan. Email:;;Assistant Professor, Department of Finance, Ming Chuan University, Taibei, Taiwan. Email: . |
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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. |
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Keywords: | Chinese banks foreign bank penetration foreign strategic investor |
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