The Empirical Research On The Influence Of The Bank-related Franchise Value On The Bank Stability

There is a close relationship between the franchise value and the bank stability. Franchise value can be seen as an invisible treaty which the state carry out supervision over the commercial banks. It is associated with the high barriers for banking industry to entry, producing a certain degree of monopoly. It will give the commercial banks to carry out the safety management of a certain self-discipline space. The franchise value is the link between the financial supervision and the bank risk management, and it plays a very important role in the implementation of the government’s financial regulatory policy. It can be seen that the study of the impact of the franchise value on the bank stability in China will have important theoretical and practical significance. And accelerated process of marketization of interest rates, the reform of the banking industry admittance mechanism, the establishment of deposit insurance system and the private banks, result in "market-related" franchise value decline gradually, whose importance in the bank franchise value diminished. And "bank-related" franchise value will be the key factor deciding the level of franchise value. Under this background, it is particularly urgent to discuss the determinants of the franchise value, and explore the right way to improve the franchise value. Also, it has important significance to the deepening of financial reform and the steady operation of the banking industry.In this paper, we employ the combination of theoretical analysis and empirical analysis, qualitative analysis and quantitative analysis. Using the theory induction method to analyse the meaning, the origin, the basic characteristic, the measurement method of the bank’s franchise value, and the definition and measure index of bank stability. In the empirical part, the study is divided into two steps: in the first step, establishes a dynamic panel data regression model, empirical analyses the influence factors of bank’s franchise value, which are also the ultimate impact factors of bank soundness. In the second step, we employ non-performing loan rate, risk weighted assets ratio, bankruptcy risk, capital adequacy ratio, return on assets variables to measure of bank soundness as explanatory variables of China’s listed banks, using generalized method of moments to verify the relationship between China’s franchise value and the bank stability. In order to increase the credibility of the conclusions, the empirical results of the relationship between franchise value and the bank stability are tested by two times. Robust Test 1 uses pre-tax profit theory replace Tobin Q theory to calculate franchise value. Based on the regression model, robust test 2 eliminates the variant of weaker significance level, improves the frequency of sample period, uses quarterly data to replace annual data. After the robust test, it is clear that the self-discipline of franchise value still exists, and the franchise value contribute to the bank stability. As a result, we can improve the franchise value to improve bank stability. Besides, this paper puts forward the corresponding policy suggestions on the basis of the result of empirical test.