The Research On The Corporate Governance Reform And Efficiency Of State-Owned Commercial Banks

A study of the reform and performance of corporate governance in China’s state-owned commercial banksCorporate governance has caught people’s attention since1980’s. After studying the competitiveness of two types of corporations—the Anglo-American ones and the German-and-Japanese ones, economists and industrialists realized the impact of corporate governance structure on firm performance, thus the global attention on corporate governance. The development of the corporate governance system of China’s state-owned commercial banks can be divided roughly into four periods, just as China’s economic development:Period1:1949-1978, the period of "great unity" under the planned economy.Period2:1978-1993, the period of specialized banks under the "planned commodity economy.Period3:1994-2002, the transitional period when state-owned banks carried out reforms.Period4:2003-, when stated-owned commercial banks have carried out share-holding system reform and tried to establish modern corporate governance structure.Then there arise a series of questions. At different periods, what are the impacts of external controls, namely, government intervention, market structure and ownership arrangement, on the corporate governance of state-owned commercial banks? What is their internal governance environment like? Is it effective? How did governance performance change in different stages of reform? What are the factors, which have influenced governance performance? What are the impacts of the modern governance structure on governance performance? In which way has it influenced governance performance? What are the impacts of the present internal governance environment on governance performance? All these questions are worth studying.The dissertation tries to analyze corporate governance of China’s state-owned commercial banks in the light of new institutional economics, property rights economics and finance. The research methodology of this thesis is a combination of prescriptive study and empirical study, both qualitative and quantitative. The thesis discusses the factors, which govern corporate governance of commercial banks and the ownership arrangement that is unique to commercial banks, and then compares the two popular governance modes in today’s corporate governance. It also analyzes the problem of control benefits. It tries to answer both the question of "what should be governed in a corporate" and the question of "what is governed in a corporate". It analyzes the relationship between state-owned commercial banks and the intervention from the central and local government, and also the relationship between the change of China’s market structure and corporate governance. In the thesis, the author studies the change of governance performance of ten joint-stock banks in terms of X-inefficiency by using DEA. In addition, the author tries to study the factors which determine or influence the governance performance by multiple linear regression, DID and General DID in order to prove that the corporate governance structure which is common in state-owned commercial banks can improve their governance performance and sum up useful experience.The dissertation focuses on four issues:1.Study the reforms of state-owned commercial banks and the impact of government intervention on the governance of these banks.2. Analyze the internal and external governance environment of these banks. Elements of external governance are market structure and ownership arrangement. Market structure plays a significant role in the economic behaviors of commercial banks, and economic behaviors determine the performance of market operation and corporate governance. Furthermore, it is also necessary to study the sound allocation of residual claims and residual control rights in the light of contract theory of enterprises. As for internal governance, the dissertation reviews the change of banks’internal structures, analyzes the deficiencies in internal structures and discusses the future orientation of the reform.3. Analyze the change of the banks’ performance of corporate governance in the process of reform by comparing the X-inefficiencies of ten joint-stock banks from1996to2006.4. Analyze the elements of internal governance, which influence the performance of corporate governance from three perspectives. First, the impact of operational features of the banks on their governance performance. Second, the impact of modern corporate governance structure of three banks on their operational efficiency by modeling so as to make an assessment of the reform; how has modern corporate governance structure influenced operational efficiency from the perspective of maximizing business and minimizing cost. And the third, the impact of the features of internal governance structure on governance performance.The findings of the dissertation are as follows:1. Compared with the period of specialized banks, service of China’s commercial banks has been improved significantly when market structure changed, largely due to the competition between different banks. In addition, discounts given by the banks have increased the overall social welfare rather than the other way around. When it is the higher authorities that approve appointments and personnel changes, the promotion of management personnel has long been based on their public relation ability instead of management ability. Therefore, even if these banks fully implemented the relevant policies, it is still difficult to solve the problems and improve the present system.2. Today, state-owned commercial banks still have a number of problems, namely, nominal ownership of the property rights, lack of sound supervision and assessment of the Board of Directors and the management, weak constraint mechanism and insider control, and ineffectiveness of incentive constraint mechanism and principal-agent mechanism. Therefore, the present internal governance structure must be assessed when considering the unsound market mechanism. Firstly, banks need to adhere to the basic corporate governance principles which have been proved effective. Secondly, banks need to create favorable conditions to improve the effectiveness of corporate governance structure. Thirdly, banks have to solve the problem of governance structure when the dominant state ownership is, in some sense, nominal. Fourthly, banks need to construct a standard company system. Therefore, it is necessary to build effective governance structure, and at the same time, clarify property-right relationship and promote the trusteeship between the owners and the Board of Directors.3. From1996to2002, the level of X-inefficiency of state-owned commercial banks varied, but it remained high. Since2002, the level of inefficiency of state-owned commercial banks has decreased sharply, to0.063in2006, while the level of X-inefficiency of joint-stock banks has increased. From2004to2005, the level of X-inefficiency of two types of banks is close to each other, which means the X-inefficiency of the two types changed. The comparison between the two types of banks reveals that the sharp reduction of X-inefficiency of state-owned commercial banks from2002is due to their efforts to overcome interference from macro-factors, and the reform to introduce joint-stock system and standard corporate governance system. When the modern corporate governance structure began to take effect, the reform inevitably lead to the sharp reduction of X-inefficiency.4. Thanks to the modern corporate governance structure, the X-inefficiency of three state-owned commercial banks decreased by12.1%. In other words, in comparison with the control group which has not carried out the reform, the overall governance efficiency has been improved to a large extent. Therefore, it can be said that the modern corporate governance structure has contributed, to some extent, to the improvement of operation. The management efficiency of the three state-owned commercial banks has registered a net change of8.7%due to the corporate governance structure. The management efficiency has a net increase of5.3%, the lowest increase among the three index of efficiency.5. Since commercial banks have built modern corporate governance structure, the annual increase of both the business income and business expenses has changed. To be specific, the latter is0.7%more of the former, which means the promotion of governance efficiency results mainly from the expansion of business. But at the same time, business expenses also increase greatly.6. In the ownership structure of commercial banks, the largest shareholder has not played its role in the improvement of governance performance, and due to the high concentration of shares in the hands of a relatively small number of shareholders, the problem of insider control remains unsolved. The appointment of independent directors is of help to improve governance performance, but the Board of Supervisors and the Board of Trustees are under the control of the Board of Directors and the senior management, so they are not able to have their role. Award to the top management has exerted a positive influence on the improvement of governance performance, but under the annual-salary system the standards of performance evaluation are vague. Some of the standards are subject to external factors due to the difficulty to quantify them.