Title: The effect of ownership on bank prudential behavior
1The effect of ownership on bank prudential
behaviorthe case of China
2Motivation
- China has a large banking sector,relatively less
studied. - At the end of 2004, the assets of depositary
institutions in China totaled 31,598.98 billion
RMB, of which 53.6 was held by the four
state-owned banks and only 14.9 was held by the
eleven joint-equity banks. - Does ownership matters?
- Performance V.S. prudential behavior
- Former research results of ownership and
performance are mixed. - Joint-equity banks are quite similar to
privatized state-owned banks.
3Main findings
- Joint-equity banks tend to be significantly more
prudent than state-owned banks - Four state-owned banks in China have been
carrying out reforms, and have become more
prudent over the years as a result
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7Literature review
- SOEs lack of managerial incentives
- Alchian (1965), Vining and Boardman (1992)
- Ownership and bank performance
- Clarke et al.(2005), Altunbas and Evan (2001)
- Investor protection and risk taking
- Yeung, Litov and John (2006)
- Prudential behavior of private banks
- Strock, and Travlos (1990) ,Gorton and Rosen
(1995) - Berger and Udell,(1994), Milne (2002), Shrieves
and Dahl (2003)
8 ContributionsThe first paper specialized in
connecting ownership and bank prudence. The
first paper to study ownership and bank portfolio
allocation based on chinas bank ground. This
paper can help to understand the main reasons of
bank portfolio allocation difference.
9Data and methodology
- The firm level data sample period is from 1985
to 2004, totally 14 banks and 21 years, 214
observations. - Quarterly macro data of state and national
joint-equity commercial bank observations for the
period from quater1, 1993 to quarter 4, 2004,
totally 96 observations. -
- Most data are hand collected
10Hypothesis 1(static effect) joint-equity banks
will be more prudent than state banks due to
their better corporate governance. Hypothesis
2(dynamic effect) state banks are getting more
and more prudent due to management reform.
- Bank prudence measures aß1 Bank dummyß2
List dummy, - ß3 GDP growthß4 Interest rate measures,
- ß5 Bank fund source measuresß6 Bank assets
ß7Regulatory measures, - ß8 State-owned bank Time Error term.
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12Firm level regression results
- In most of the regressions, the bank dummy is
significant at the one-percent level and has the
correct sign. - List dummy seems to have little explanatory
power, - State-owned bank time is significant in five of
the six regressions. - Are state banks trying to maximize broader
social objectives? - Sub sample 1994-2004
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16Macro data regression results
- Bank dummy is significant all the time at one
percent level - State banktime is significant and at 1 percent
level in two regressions. For the bank excess
reserve regression, state banktime is
insignificant, I think this is driven by the
change of Chinas money market.
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18Conclusions
- Joint-equity banks have better corporate
governance, they tend to have higher excess
reserve and deposit loan ratio, and lower loan
asset ratio. This shows that they operate
significantly more prudent than state banks. - State-owned banks have been carrying out fairly
efficient reforms and are becoming more prudent
as a result While many people have been
criticizing the state banks to be just a growing
NPL producer, empirical results seem to be in
favor of a positive view.
19Thank you!