A Research On Commercial Banks' Franchise Value And Its Impact Factors In China

Banking is the franchise industry; franchise value of banks is the value of banks'franchise warrants in literally. If encounter bankruptcy, banks will not only lose its own capital, but also these franchise value, so the existence of franchise value actually increase the cost of bank insolvency. Bank franchise value can be regarded as an intangible asset, its existence can inspire banks to take a more cautious business strategy, and also regulatory authorities can strengthen supervision of banks by franchise value.Franchise value has been little studied in our country, and the limited study is primarily related to study in theory and the relationship between bank exposures and franchise value. Also, there wasn't systematic study for the change of franchise value and its impact factors. In this paper, we chose 22 commercial banks'data in 11 years as the sample, systematically analyzed the change of franchise value of China's banks and its impact factors from both theoretical analysis and empirical study. Taking into account the special nature of China's banking industry, we closely combined the change and development of China's banking industry, including the financial system, changes in government regulation of the banking sector and the opening of bank, to analyze them. According to overseas research findings, financial liberalization and deregulation often leads to a decline in banks'franchise value, however, this paper found that it dose not meet the case of China's banking industry.This article firstly defined the concept of franchise value, and summarized its source and mechanism according to previous research, therefore paved the way for later analysis. In the measure of the banks'franchise value, Tobin's Q is commonly used in abroad, because the method can well cover the source of franchise value. However, the paper argues that this approach is not suitable in the present case to measure China's banks'franchise value. In addition, there is no generally accepted method in our country to measure franchise value. So, we construct a new method in the base of previous research to measure China's banks'franchise value. In the results, we found that although the control has been loosing as well as the competition has been strengthening, the franchise value of China's banking industry and large state-owned banks and joint-stock commercial banks are rising, and only city commercial banks'franchise value dose not appear to an obvious trend. Next, according to the two sources of franchise, we also divided the impact factors into two categories. Firstly, we qualitative analyzed the impact factors of bank's franchise value, and then we empirical studied the relationship between these factors and franchise value. As the result, we found that the strengthening of competition not only didn't lead to the decline of banks'franchise value, but also promoted the increasing of it. Besides, the success of state-owned commercial bank reform, the development of intermediary business and the entry of foreign banks in China are conducive to the improvement of franchise value.Finally, we proposed a number of policy recommendations according to the full text of this article, including encouraging fair competition, deepening financial reform, taking effective measures to improve the competitiveness of the banking sector, and so on.