Bank shareholder network and board governance: Evidence from Chinese commercial banks

Abstract

Board governance is an important aspect of internal bank governance. We conduct an empirical study on 100 banks in China for the period from 2004 to 2017 using a time-varying growth bank shareholder network to investigate the relationship and mechanism between bank shareholder network and board governance. The bank shareholder network is found to have a positive impact on board governance. This positive effect differs across bank's service areas and ownership properties, indicating a reinforcing weakness effect. The empirical analysis shows that enhancement of network centrality can improve board governance in a bank shareholder network through three mechanisms: information sharing, reputation incentives, and effective connections. These findings provide new evidence for applying social networks in the financial services industry and identify policy implications for improving internal governance from an informal institutional perspective.