The Local Officials’ Govenrance And Lending Behavior Of City Commercial Banks

Government ownership of banks is pervasive around the world, which leads tothe behavior of loan intervention from government as a shareholder. And researchesabout the economic consequences of government ownership has evoluted from early“Development View” to the widely concerned “Political View”, which argues thatpoliticians will control bank credit allocation based on their political goals ratherthan social welfare and is not conducive to the development of banking and financialsystem.Then, lots of papers inspect this issue from government shareholder’smacroeconomic impact, individual effects and bank behavior, and have obtainedabundant and consistent results. However, it should be noted that these studies stillconsider government as a whole and attempt to confirm the political view throughexploring bank loan from government level. We think that government behavior isonly a superficial result, and the deeper is the officials’ conduct. Government itself isan abstract “black box”, and its behaviour shown outside is actually themanifestation of officials’ motivation. It is official who embeds their politicalobjectives into government as the shareholder of banks that makes governmentownership performs the political feature. In this sense, above studies just see thegovernment but not the officials, fail to track government behavior to the substantialindividual: officials, and do not provide direct evidence of the political view.Therefore, researches on the political view of government ownership should turnfrom “government and bank” to “official and bank”, which help us understand therelationship between government and bank from the root.China’s City Commercial Banks (Hereafter CCB) is unique samples to examinethe subject. On the one hand, under China’s administrative governance syatem, localgovernment not only has controlling ownership of CCB, but also controls theexecutive’s appointment of CCB, which allows local officials have enough ability tointervene in CCB’s lending behavior as the substantial individual of localgovernment. On the other hand, local officials’ governance characteristics can affect economic growth under the promotion tournament system based on the GDP growth.And as a major source of funds to promote economic growth, local officials havegreat incentive to intervene in bank loans. Especially in the situation that theinvestment source of local government hae been limited, CCB has further becomethe primary means of local officials to promote economic growth and obtain politicalpromotion. Based on above logic, this paper extends the perspective fromgovernment to official, explores the governance characteristics of local officials’influence on CCB’s lending behavior and provides direct and strong evidence of thepolitical view.The research thought and framework follows the paradigm from normative toempirical analysis. After introducing reseach problem and methods in Chapter One,then Chapter Two reviews related domestic and foreign papers from the economicconsequences of government ownership, and local government incentive andeconomic growth. And based on the analysis about institution evolution ofrelationship between local government and banking, we theoretically elaborate thelogical framework of this paper. From Chapter Three, we begin to enter the empiricalanalysis section, and our basic sample is the corresponding sample of local officialsand CCB during2006-2009. We manually collect the relavant annual report of CCBand governance characteristics of local officials, and exam the influence of officials’governance characteristics, including promotion incentive, source, tenure,destination and turnover, on the bank loans of CCB.Chapter Three explores the role of promotion pressure of local officials, and theresults indicate that promotion pressure can significantily affect CCB’s lendingbehavior, and officials’ tenure will further influence the relationship. At the sametime, promotion pressure can results in non-preforming loans through specificlending behavior, and it can effectively inhibit the accumulation of non-performingloans to add environment protection and people’s livelihood to officials’ promotionevaluation system. Based on the analysis of heterogeneity of officials and incentive,Chapter Four and Chapter Five futher exam the relationship between official andbank loan while the former is from the perspective of governance characteristic andthe latter is from tureover. And the results show that there have great differences in loan supply of CCB located in local officials with different source, tenure anddestination. Moreover, officials’ turnover will lead to a significant increase of loangrowh, and this effect will vary due to the features of officials and cities. Chapter Sixfurther inspects internal governance mechanisms of CCB’s impact on therelationship between officials’ tenure and bank loan, and the results demonstrate thatoffcials’ tenure has a significant positive correlation with loan supply of CCB, andthe special political conncection official director can strengthen the relationship. Thelast Chapter Severn is conclusions of whole paper.Overall, this paper has broke through the study about relationship betweengovernment and bank, and exam governance characteristics of local officials’influence on loans of CCB from the perspective of official and bank. And the resultsindicate that officials’ various governance features will have an important andsignificant impact on bank loans, which provide direct evidence for the politicalview of government ownership. Moreover, this paper creatively expands existingstudies about officials from province to city level, and turns the perspective frommacro factors such as economic growth to the micro level as corporate behavior. Theconclusions of this paper mean that researches on government ownership andgovernment behavior should proceed from the new and essential level that isofficials in theory, and in order to realize the sustainable development of CCB, weshould take measures primarily from increasing the interventing difficulty andweakening the interventing incentive of local officials in practice.