Chinese commercial banks: Benefits from foreign strategic investors?

Abstract

Introducing foreign strategic investors (FSIs) has been vital to China's bank ownership reforms. Using relevant data between 1995 and 2014, we employ the propensity score matching and difference in differences approaches to investigate the effects of FSIs on bank risks, including insolvency risk, capital risk, liquidity risk, asset quality, and credit risk. We make several findings. First, FSIs may significantly reduce bank risks, with the exception of insolvency risk. Second, the effects of FSIs on capital risk, liquidity risk, asset quality, and credit risk are weaker in state-owned banks than in non-state-owned banks. In addition, FSIs-assigned directors and managers could further decrease bank capital risk, liquidity risk, and credit risk, and improve bank asset quality. And directors and managers have weaker effects on bank risks in state-owned banks. Finally, bank risks exhibit no significant changes after FSI exits, and the effects of FSIs on bank risks do not differ between banks without and with exited FSIs. This suggests that spillover effects work more than monitoring effects in the context of China's financial background.