Bank Ownership Reforms and Prudential Behavior: Evidence from a Transition Country

Abstract

Using the data of 82 Chinese commercial banks from 2000 to 2012, this paper investigates the effect of bank ownership reforms on prudential behavior. Three main results emerge. First, state-owned commercial banks are more prudential than joint-stock commercial banks and city commercial banks (the static effect). Second, compared to banks that did not introduce foreign strategic investors or undertake Initial Public Offerings (IPO), the banks that introduced foreign strategic investors or undertook IPO exhibit no differences in bank prudential behavior (the selection effect). Third, introducing foreign strategic investors has not an obvious effect on bank prudential behavior, either in the short term or long term, and undertaking IPO has not an obvious effect on bank prudential behavior in the short term. However, undertaking IPO has increased the ratio of gross loans to total customer deposits and the ratio of gross loans to total assets in the long term (the dynamic effect). This research not only presents empirical evidence for ownership reforms but also provides practical suggestions for further reforms in the Chinese banking industry.