Research On Leverage Effect Of Commercial Bank

With the reform of China’s market economy and an increasingly globalized world economy, the competition among enterprises is becoming increasingly fierce. The ability of continued profitability of the enterprise determines the competitiveness, the profits of the enterprise is ultimately achieved through all aspects of financial management. Operating leverage and financial leverage as an important financial tool, are now increasingly being used in a variety of financial management and decision-making.Over the past decade, China’s commercial banks reform proceeded steadily and showing a trend of acceleration. Agricultural Bank of China was listed in2010, the large commercial banks complete the joint-stock reform; At the same time, a large number of city commercial banks have to seek financing channels; rural credit cooperatives reform has been steadily advancing, a large number of rural commercial banks have been established or in the pipeline, the China banking Regulatory Commission2010annual report show that, at the end of2010, the number of China’s city commercial banks is147, rural commercial bank is185, rural cooperative banks is223, rural credit cooperatives is2646, the development of China’s commercial banks showed an unprecedented momentum of development.Domestic research on financial leverage and operating leverage are mostly focused on the influencing factors and a reasonable range from the perspective of all industry as a whole, there is not too much research on a specific industry. Research focused on commercial bank is little.This paper attempts through the collation of data to study the following questions:The overall level of operating leverage and financial leverage of commercial banks as well as the distribution between the different categories, The trend of operating leverage and financial leverage, The correlation between the degree of financial leverage and the overall financial position of commercial banks,whether the degree of financial leverage of different categories of commercial banks was statistically significant different. Through analysis, this paper got the following conclusions:Commercial banks generally have a low degree of operating leverage, operating leverage effect is not obvious, but the degree of financial leverage is higher, the leverage effect is obvious, from2006to2010, commercial bank’s degree of financial leverage have a significant downward trend, Operating leverage and financial leverage is significantly negative correlation with the overall financial position of commercial banks. the degree of financial leverage of different categories of commercial banks is not statistically significant different.This paper is organized as follows:chapter1is an introduction about this paper’s background, methods, the overall framework of the papers. chapter2is the literature review, from both domestic and foreign. chapter3is the theoretical analysis of operating leverage and financial leverage as well as relevant risk theory. chapter4is the empirical analysis, which is a core part of this paper. chapter5is the conclusions and limitations of this paper.