Empirical Analysis On Corporate Governance And Comprehensive Performance Of Chinese Listed Banks

Before the reform and listing of China's commercial banks, the four major state-owned commercial banks and more than 100 various types of domestic commercial bank face serious problems such as single ownership structure, low rate of capital adequacy, incomplete corporate governance structure, high rate of non-performing assets and low operating efficiency, which impacts the competitiveness of China's banking sector. After accession to the WTO, the banking industry speeds up the pace of opening to the world, and China's relatively closed financial system will be gradually integrated into the general pattern of international financial competition, which exerts pressure upon the reform of state-owned commercial banks. Since 2005, China's commercial banks have accelerated the pace of listing through the disposal of non-performing assets, the replenishment of capital, the introduction of strategic investors, as of the end of 2008, a total of 14 domestic commercial banks have been listed in the mainland and Hong Kong Stock Exchange. At present, China's listed banks have built modern financial enterprise system, in the framework of the system, it is the core of China's commercial banks' further reform to build good corporate governance mechanism. It's been one of the major issues for current and future research how to turn the optimization of effective corporate governance mechanism into the improvement of comprehensive performance of the listed commercial banks.Based on the research of model and reform about banking corporate governance, This paper probes an in-depth perspective into the bank, placing the internal elements such as equity ownership structure, board structure and management remuneration into the bank's corporate governance areas to form a more complete analysis of banking corporate governance framework. In this framework, risk control has been established as the core concept of governance based upon a study on commercial bank's specific characteristics. The paper selects a number of bank-specific variables and examines the relationship between ownership structure, governance mechanism and comprehensive performance, which puts forward suggestions on optimization of bank's corporate governance.First of all, commercial banks have such characteristics as high debt ratio's capital structure, non-transparent asset transactions and very strict industrial control and supervision, which determines special interests-oriented of corporate governance and to some extent has an impact on internal and external corporate governance mechanisms. Therefore, bank corporate governance is optimization of internal and external governance mechanisms so as to better coordinate the interests between shareholders and creditors and to control operation risks to protect the interests of creditors, namely, bank corporate governance is to protect the interests of all investors including shareholders and creditors.Secondly, the paper discusses equity ownership structure, board structure, executive pay of China's listed banks. The results find that the proportion of state-owned shares and the ratio of non-performing loans show a quadratic function relations with a significant U-type, which turning point is 69.08%. There is no significant correlation between the proportion of corporate shares and comprehensive performance, the proportion of circulation shares and comprehensive performance. So the further optimization of state-controlled banks' ownership structure is not just to decrease the proportion of state-owned shares. The board of China's listed bank has played an active role in the banking risk control and is becoming more and more cautious under the pressure of supervisor and shareholder. The board of China's listed bank needs to further optimize the independent director system because board's independence does not reflect the performance of governance. CEO and chairman of the board are separated which is common in Chinese listed banks and has no material impact on executive compensation. And outside directors do not play a supervisory role on executives compensation plan. In executives compensation plan of Chinese listed banks, it is not risk control but profitability level that is the core performance evaluation index. As China's split-share reform, as well as the growth of institutional investors' size, institutional investors have more ways and incentives to supervise the executives of banks and say no to executives compensation plans which do not meet the interests of shareholders.Finally, the dynamic simulation study finds that proportion of state-owned shares, executive pay and comprehensive performance show an inverted U-shaped relationship, which turning point is around 40 percent state-owned shares ratio, the natural logarithm of executive pay 6.3148 and comprehensive performance 0.018. When the proportion of state-owned shares in 0～0.4, executive pay in 4.0037～6.3148, the combined effect of the state-owned shares and executive pay promotes the comprehensive performance to maximum 0.018, showing the interests convergence effect; When the proportion of state-owned shares in 0.4～0.7029, executive pay in 6.3148～6.6178, executive pay raise will still be able to improve comprehensive performance, but a higher proportion of state-owned shares will lead to a decline in comprehensive performance, which demonstrated the interest encroachment effect.