Abstract
This study draws on in-depth qualitative interviews to investigate the variety of institutional forces which influence the adoption of western corporate governance mechanisms in Chinese banks. Following path dependency models of institutional change it was shown that cognitive and normative institutions, including a ‘who you know’ or guanxi credit culture, mean that the practical influence of western banks on corporate governance reforms was perceived to be ineffectual in most cases. Given the failure of western credit-rating systems in the sub-prime crisis, it is likely that this perception will increase in the future. The majority of western actors believed that the main reason Chinese banks seek to co-operate with western institutions was to enhance the legitimacy of the Chinese bank in the global financial environment, rather than to actively change existing governance mechanisms.
Highlights
The development of China‟s economy has, to date, been driven by its considerable supply of cheap labour and its many and varied production opportunities
At a theoretical level, these adjustments raise some important questions about the nature of institutional change in China‟s economic transition, such as whether China will develop its own unique form of corporate governance, or whether it will converge towards the more market-based models commonly found in the west
This study aims to investigate the institutional forces which affect the adoption of western corporate governance mechanisms in Chinese banks
Summary
The development of China‟s economy has, to date, been driven by its considerable supply of cheap labour and its many and varied production opportunities. The reform of China‟s banks is well underway and the basic methods employed for restructuring have been large capital injections, the setting up of „badbanks‟ and asset management companies, initial public offerings, partnerships with foreign banks (with the aim of improving management and IT development) and the inclusion of overseas board members to help improve corporate governance (Hu, 2005; Zhang et al, 2006) Some see these moves as part of a broader interest by Chinese officials in developing an economic institutional environment which is more reflective of the international business community (Guthrie, 1998; Wang, 2007). At a theoretical level, these adjustments raise some important questions about the nature of institutional change in China‟s economic transition, such as whether China will develop its own unique form of corporate governance, or whether it will converge towards the more market-based models commonly found in the west
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