The Research On Correlation Between Capital Structure And ROE Of China's Commercial Banks

With the deepening of economic reform, in particular China's rejoining WTO by the end of 2006, the situation of China's commercial banks will become increasingly grim. Foreign banks of well-capitalized, experienced, advanced management will bring great challenges to commercial banks'survival and development in China.It requires that China's commercial banks should establish a modern commercial banking system as soon as possible, improve its competitiveness, improve the governance structure, optimize the capital structure.In recent years, in order to appear on market, China's banking sector takes drastic transformation to the shareholding system. Given the large number of banks listed, investors become more decentralized; ROE will be of great concern for bank regulators and shareholders. And capital structure is the reason for ROE, so the correlation between capital structure and ROE has become a major theoretical and practical significance of the study.This paper discusses the correlation between capital structure and ROE of state-owned commercial banks and joint-stock commercial banks. The pater first reviews various theories of western capital structure and perspectives, and deal with the special attributes of commercial bank. Then, we analyzes the present situation of China's commercial banks'capital structure in detail, and elaborate the correlation between capital structure and ROE.In the next chapter IV, we choose seven large foreign commercial banks, make a comparative study upon the capital structure, and states the correlation between capital structure and ROE. In Chapter V, on the basis of the financial statements of China's commercial banks, we take the empirical analysis, and explain the empirical results. Finally, with reference to the above analysis, we put forward the suggestions to optimize China's commercial banks'capital structure.