Research On The Corporate Governance And Operating Performance Of Commercial Bank

With the opening-up of the financial sector and the deepening of the reform, reforming Chinese state-owned commercial banks are becoming a topic issue. The main problems of state-owned banks, such as high rate of non-performing assets, low capital adequacy ratio and the bank's poor performance, have roots in the low efficiency of state-owned bank governance. In fact, as in the transitional period, China's banking system is strongly government-guided and thus is incompletely externally governed. These features, together with the internal governance structure, constitute the low performance of Chinese banks. Since the 1997 Asian financial crisis, corporate governance of the banking industry has under concern internationally. The corporate governance structure is the core of modern commercial banking system. As an important part of the reform of commercial banks, corporate governance in large state-owned commercial banks in China continues to improve in recent years. The Chinese commercial banks are not listed for a long time, so corporate governance structure is still to improve, from the establishment to the sound performance. Current problem for corporate governance of the large state-owned commercial banks are:lack of checks and balances and oversight mechanisms, ill-proportioned independent directors and staff structure, unreasonable incentive mechanism between salary structure and performance management, overrated pay of senior executives leading to a blind trend in the industry of dilated pay for perpormance, scale and risk preferences resulting from strong "tunnel effect" and "insider effect" by leading shareholders, continuously high rate of non-performing assets. Based on the background information and the the general pattern of corporate governance, this paper focuses on establishing a general analysis framework of the corporate governance in the banking industry. Through theoretical analysis and empirical analysis, the paper discusses the influence of such governance factors as the government controled variables and foreign-investment controled variables on performance. Following the clue of "governance structure and operating performance," the paper analyzes the operating efficiency of the Chinese banks from a micro level of the governance structure. With an in-depth analysis of current situation of domestic governance structure, the paper takes on a quantitative analysis based on the 2004-2009 semi-annual data of China's five first listed banks:the empirical study focuses on a trend analysis of the banks'history performance; the result shows that as China's banks gradually improved governance structure, operating performance of listed banks is gradually upgrading. Later the paper examines bank ownership structure, salary structure, financial structure, board size and bank asset size, and the correlation between business performances with a panel data model. Considering the characteristics of transition economies and banking reform process in the government-led characteristics, this paper adds the factors of government intervention and ownership to the regression equation of performance, and sets government control factors as control variables to further examine the performance of banks under government intervention. On studying the emperical relationship between the ownership structure of listed banks and the performance, the paper then concludes that an excessive proportion of the largest shareholder's stocks may lead to low efficiency of banks, and thus weakened control of the largest shareholder may improve operating performance of listed banks. Government-controlled factors and property rights factors on the business performance have significant effects on listed banks. Non-state-controlled banks perform better than state-controlled banks. The numbers of independent directors have no significant impact on the performance of Chinese banks, but board size may relate implicitly to the performance. Foreign ownership factors have no significant effect on the performance of Chinese banks. In addition, assets that reveal the coherence of the financial structure and incentive motivation of risk preference of Chinese bankers have some effect on the performance.Finally, the paper suggests a set of political recommendations for improving the corporate governance from ownership structure, structure of property-right, board size, number and structure of independent directors and personnel, financial risk preferences, and firm size preferences.