A Study Of Village Banks’ Performance In Zhejiang Province Based On The Social Capital Theory

"Village bank" emerge as a great innovation following the establishment ofAgricultural Development Bank, Agricultural Bank of China and rural creditcooperatives.Village bank is a new financial institutions in the context of a new era inorder to solve the problem of binary economic structure in urban and rural areas.Itspurpose is to improve the rural financial environment, solve the problem of ruralfinancial loss. Village bank aims at providing services for the small and microbusinesses and farmers in rural areas, therefore village banks are faced with problemslike inaccurate financial information, high cost of labor, poor financial environment etc..Compared with other financial institutions,Village bank can hardly establishwell-functioning decision-making and management mechanism, its decision-makingprocess is more reliant on "soft information".It is relatively easy for village banks toobtain information in a social way,given the environment they are in. In thecountryside,observing traditional code of conduct can reduce the cost of getting accurateinformation. This is a unique advantage of village banks, which can make it morecompetitive.This paper is mainly about introducing the social capital of rural banks to thevillage bank business, taking it as a economic factor in the analysis of the developmentof village banks, then verifying its impact on the village bank business using therelevant theoretical and empirical analysis of its mechanism, and finally, ways toimprove the performance of village banks.Firstly, this paper made a summary from the research of rural banks and socialcapital based on the existing studies.Since the academia doesn’t have a unified standardabout the concept of social capital, this article draws the definition of social capitalfrom three successful rural finance research cases abroad, in which the author believesthat social capital is actually bank owned social resources, resources that can be used toimprove bank management. Empirical study on social capital of village banks must takemethods of measurement into consideration, this paper puts forward measurementmethod of single element and multiple elements.Secondly, we conducted research on its impact on the village bank business usingthe relevant theoretical analysis of its mechanism.From the staff level, the social capitalof the bank staff is the social capital of the village banks, employees can be divided into the ordinary staff and the senior staff. A lot of literature emphasize on the role of seniorstaff,replacing senior staff social capital with village bank social capital and ignoring theordinary employees. From the organizational level, this paper tries to analyze the ruralbank using Static Games of Complete Information, social capital of village banksorganized in this way can keep banks out of issues like opportunism, asymmetricinformation, coordination failure and others in a certain extent, achieving Pareto optimalstate.Finally, we collected data of social capital of rural bank through the questionnairewe issued.Then we conducted empirical analysis on the role of social capital in thedevelopment of village bank using software of SPSS, in which the positive effects ofsocial capital on rural banks development are well proven.In the empirical process,wesuccessfully extracted three factors of social capital of Zhe Jiang Village Bank: verticalrelationship, horizontal relationship and social network and two factors of rural bankperformance: market performance and human performance.linear regression is thenused to establish a regression model formed by these five factors above.Every village bank manager and scholar should study this important subject of howto take full advantage of the solid and long-existing relationship network in rural Chinaand how to solve the problem of information asymmetry when lacking "stronginformation".This study verified the important role of social capital on village bankbusiness using relevant theoretical and empirical analysis.The resources of social capitalis especially suitable for solving the problems of economic development in rural Chinain less developed regions, so the village bank senior managers should develop their ownsocial capital consciously.