Foreign Strategic Investors And Internal Governance Of Commercial Banks

Finance is the core of modern economy, and as the main part of the financial market,banking industry plays an important role in China’s financial reform process. In order tofundamentally change the traditional ownership and operational mechanisms, to meet thechallenges coming from foreign banks, to improve the commercial banks’ internal governancemechanisms, enhance their own overall competitiveness, and also to meet the promise ofaccession to WTO, China’s banking industry has carried out a series of reforms, with theintroduction of foreign strategic investors. Bringing in the foreign strategic investors, ourregulation makers, government officials and scholars had given full recognitions. They thoughtthe domestic commercial banks that treat the ‘attracting foreign capital’ as an interlink. Andthrough this action, we can get foreign advanced management ideas and strong technicalsupport, so as to achieve ‘bring in new system’,‘bring in new technology’ and ‘bring in newthinking’. We can improve the overall competitiveness of domestic commercial bankseventually. However, some experts question the necessity of introducing foreign strategicinvestors and the sale of banks’ ownership. Yet they worried about the whole China’s financialsecurity problems after introducing the foreign strategic investors.It is a critical problem worthy further exploration that whether the introduction of foreignstrategic investors really improves the performance level and the enterprise value ofcommercial banks, or it just provides a financial investment opportunity with high returns forforeign strategic investors. From previous studies, most scholars only made qualitative analysisfor introducing foreign strategic investors or made comparisons of the performance levelbetween before and after the introduction of foreign strategic investors for commercial banks.Thus they did not fully consider the impacts of introducing foreign strategic investors inChina’s commercial banks internal mechanism. While, from the point of view of internalgovernance, this paper analyzes the impact of introducing foreign strategic investors in China’scommercial banks’ overall performance and company’s value.Firstly, based on the relevant literature reviews from China and foreign papers, this paperanalyzes the specialty of commercial bank’s corporate governance. Starting from the generalbusiness’ problems of corporate governance, combined with the particularity of commercialbanks, this paper analyze the framework of commercial banks’ corporate governance, whichprovides the necessity of interpretation and instructions for the introduction of foreign strategicinvestors and to improve the organizational framework of internal corporate governance forChina’s commercial banks in later parts.Secondly, this paper analyzes the process of introducing foreign strategic investors forChina’s commercial banks. With the time of introducing foreign strategic investors, the IPOsfor commercial banks, and based on the contents of bilateral strategic cooperation, by adopting qualitative analysis method, the result shows that we can exchange the adcanced managementconcepts from introducing the foreign strategic investors. Especially, it is worth our continuouslearnings from the experience of corporate governance and product design from qualifiedforeign strategic investors. Meanwhile, by introducing foreigner strategic investors, it directlyenhance the confidence of China’s banking reform the capital market, which helps to raiseinvestment value of China’s commercial banks and provide a huge bonus and value added forthe successful public listed of commercial banks.Finally, combined with qualitative analysis, this paper also provided the quantitativeanalysis on the impacts of China’s commercial banks by introducing the foreign strategicinvestors in the company’s internal governance. This article devided in to parts. On one hand,we make longitudinal analysis of the relevant governance indicators before and afterintroducing the foreign strategic investors with an empirical result test. The empirical resultshows that with the introduction of foreign strategic investors, it will reduce the overallconcentration of shareholder’s ownership in commercial banks, strengthen the equity balance,and expand the scale of supervisory and board for commercial banks, increasing the level ofremuneration of senior executives of commercial banks, which finally will increase the level ofoverall performance of commercial banks. However, for the company value of commercialbanks, the result shows in a conflict value that the total value of the commercial banks do notalways increase. This may relate to the short-term analysis this paper made, and the advantagesof introducing foreign strategic investors may reflect in long run. On the other hand, byadopting empirical test, this paper analyzes the impacts on governance indicators relatedcompanies by whether introducing foreign strategic investors. The empirical analysis showsthat the introduction of foreign strategic investors in general will improve governance toChina’s commercial banks, but not at a significant level. For the joint-stock commercial banks,although it will improve their corporate governance, but the effect is not better than ChinaMerchants Bank, which does not introduce foreign strategic investors. Therefore, we can getthat it is also worth studying from the CMB model that focusing on the domestic market and itsown brand.This research’s conclusion provided further reference for the scientific and systematicanalysis of the introduction of foreign strategic investors, as well as to explore the path ofdeepening the reform of China’s commercial banks and we should reconsider whether Chinashould continuously introducing foreign strategic investors in future.