Government's Control, Governance Mechanism And Credit Behaviors Of City Commercial Banks

Using both normative and empirical research methods, this paper reviews the relevant paper on government's control, corporate government and bank credit behavior. From the perspective of capital supplier, this paper studies government's control methods on city commercial banks and the outcome of these methods. On this basis, this paper studies the internal and external governance mechanisms on government's control on city commercial banks' credit behavior. Specifically, first, this paper examines the impact of the government on affairs of city commercial bank through size, term structure, industry distribution and concentration of loan. Second, this paper examines internal and external governance on government shareholders. Finally, this paper examines the government's right to appoint the president of city commercial banks. The main conclusions are as follows:1. The more stakes the government get, the higher level of risk of the bank will be, especially when monetary policy is tightening. The government shareholders tend to expanding size of loans, reducing the proportion of short-term loans, increasing the proportion of long-term loans, reducing its loans in the manufacturing and sale trade, increasing its real estate loan, and increasing its loan concentration. These behaviors ultimately improve the credit risks of city commercial banks.2. In terms of internal governance, dispersed ownership does alleviate the government's control on term selection and concentration of loans. However, dispersed ownership can't alleviate the government's control on loan size and industry selection; in terms of external governance, the market process can effectively alleviate the the government's control on the size, industry selection and concentration of loans, but it doesn't work on term selection of loans. On the whole, the internal governance mechanisms represented by dispersed ownership and the external governance mechanisms represented by market process can effectively alleviate the government's control on credit behaviors of city commercial banks.3. Presidents from the government tend to reducing the proportion of short-term and manufacturing loans, and increasing the proportion of long-term and real estate loans. However, these presidents intend to reducing the size and concentration of loans. On the whole, these presidents reduce the credit risk of city commercial banks. Young presidents from the governments tend to reducing loan size and the proportion of real estate loan and concentration, these young presidents raise the credit risk of city commercial banks. The dispersed ownership structure and market process can effectively alleviate the young presidents'control on banks'credit behaviors. These empirical results show that internal and external government mechanisms do work on alleviating the young presidents'control on credit behaviors of city commercial banks.Compared with existing research, the main contribution of this paper is as follows:1. Innovation in research perspective.This paper studies the impact of government on credit behaviors of city commercial banks through "right on affairs" and "right to appoint". The existing literature mainly focus on the government control on city commercial banks as shareholders, this is the first paper to classify the government control as "right on affairs" and "right to appoint".2. Innovation in research subjects.This paper regards the president of city commercial bank who is directly appointed by the government as economic man. The existing research generally regards the government-appointed executives as spokesperson of the government, however, these executives have their own interest, which is not entirely consistent with the demands of the government. Considering the one-way promotion flow between government departments and enterprises and the age of these presidents, these government-appointed presidents may have different interests with the government. Based on this, this paper divides the government-appointed presidents into different samples according to their promotion channels and opportunities, and studies the game between these presidents and the government.3. Innovation in research areas.This paper is one of the few studies on political connection of banks as money suppliers. Existing literatures mainly focus on political connection of non-financial enterprises, and treat the bank as the agency to realize their political connection. In fact, due to the special nature of bank products, the connection between banks and government is even tighter than non-financial enterprises. This paper studies the government-appointed presidents' credit decisions of city commercial banks, and reveals the influence of political connection on bank credit behaviors and their consequences.