Risk Research On The Business Structure Of Chinese Securities Firms

Having a history of100years, investment banks have expanded its business from the original bond underwriting and brokering to a highly sophicated business contents. With branches around the world, they have diversified business and engineering techniques, and play a key role in modern finance. In China investment banks ("securities firms" more formally in China) emerged from securities branch of commercial banks, and had become an important financial intermediation of Chinese financial markets. Till now securities firms still bear an income structure of huge profits or losses, depending mainly on the trading in Chinese stock markets. Chinese securities firms are facing more competition from commercial banks, insurance companies and many other companies, and they have weak competitiveness.Risk and its management are fatal to securities firms. In early stage of21st century,31high-risk securities companies were imposed sanctions and most of them faced a destiny of restructuring or merging. On the other hand, securities business plays a basic role in the development of Chinese securities firms. Unique securities business scope distinguishes securities firms from other financial intermediaries, such as commercial banks and insurance companies.Recently innovation becomes a hot topic in Chinese securities firms, especially after two innovation forums hold in the year of2012and2013. Business innovation is a future trend, and will have deep impacts to securities firms, especially on the risk of securities firms.This dissertation discusses the risk effect of business strategy of Chinese securities firms. Our goal is to find a business development strategy on the base of risk control. Our topics include:1. Risk theory of business structure in securities firms. After a brief review of related literature, this paper analyses formation reasons of securities firm business structure, and the necessities of business structure view in risk research. We first give and then compare the risk measures for securities firms, including both measures of standard deviation (S.D.) and VaR.2. Research on the relationship of business structure and company risk. Chapter4gives a brief statistic of business structure in Chinese securities firms. Chapter5constructs a linear regression model on the securities business structure and company risk. We also do empirical tests using financial statements of100securities firms in China, covering93.6%of total securities companies.3. Research on business risk integration with Copula. Considering the nonlinear relation among securities business, this paper tries a Copula model when integrating securities business risks. Chapter6gives the research model and procedure. Empirical results show the risk diversification occur when securities firms expand their business scope, and explain the empirical result of Chapter5.4. Business asset allocation model considering risk and return. Using both Copula technique and asset allocation theory, chapter7discusses optimal business asset allocation. Taking VaR instead of standard deviation and taking Copula instead of covariance, this model tries to manage risk using the idea of asset allocation. Our empirical results show the feasibility of this model.In this dissertation, we find:1. Business structure has quite different impacts on the risk of different-asset-scale securities firms.2. Diversification of risk happens when doing more business for securities firms in China.3. Business asset allocation model in chapter7can have application in financial risk management for securities firms.In this dissertation, we have4innovations as follows:1. We propose a risk theory of business structure in securities firms, and construct an analysis framework for this theory.2. We propose the Copula technique into the business risk integration analysis, and conduct empirical research and prove the feasibility of this technique.3. We are broadening the application of asset allocation into the field of business asset and then the field of risk management.4. Lacking database, we have a hard work to collect the financial statements of all106securities firms in China. The unique data contribute a lot to our empirical research.