Empirical Research On Relationship Between Capital Structure And Operating Performance In China Commercial Banks

Capital structure is one of the hottest topics in nearly half a century in the financial field,and a lot of relevant theoretical and empirical researches have been conducted. But theacademics have yet to form a unified conclusion to the relationship between capital structureand operating performance in different sectors.In recent years, significant progress has been made for the reform of the financial system.The newly development of joint-stock commercial banks, the joint-stock reform ofstate-owned commercial banks, the introduction of foreign strategic Investors and the listedurban commercial banks show us that Chinese banking system is shifting gradually to an open,competitive and diversified one. On the other hand, China’s commercial banks have to faceinternational competition as the financial market is gradually opening to foreign capital banks.How to survive in the increasingly fierce competition has become an critical issue for eachbank, and to improve the bank’s operating performance is a fundamental solution. In practice,Chinese commercial banks’ operating performance is constrained because the commercialbanks’ capital structure is inappropriate and effective management structure cannot beestablished. Therefore, the study of the relationship between capital structure and operatingperformance in China’s banking sector is of both theoretical and practical value.This study adopts empirical research methods, using the panel data of38Chinacommercial banks from2009to2011to explore the relationship between capital structure andoperating performance in China’s banking sector.9basic assumptions are made according to the literature of the relevant theoretical andempirical research results as well as the actual situation of China’s commercial banks. Thenbasic characteristics (including timing characteristics, characteristics of the nature, riskcharacteristics, scale features, etc.) of the Chinese commercial bank’s capital structure andoperating performance are summarized by descriptive analysis. And two simultaneousequations models are established with two different performance measures of pre-tax ROAand net interest margins, to test the relationship of capital structure and operating performanceby the two-stage least-squares method. The simultaneous equations models include twoendogenous variable of capital structure and operating performance and four exogenousvariables of market structure, size, risk and corporate governance features. In addition, thewhole sample and sub-samples are also discussed for the soundness of the analysis. Finally,this article makes theoretical explanation on the results of the study, and provides based4policy recommendations based on empirical evidence.