Governance Structure And Performance Of Commercial Banks In China

In China, Commercial banks are the core of the financial system, they play an importantrole in resource allocation. Corporate governance structure of banks is a set of rules andregulations in which rights and obligations between stakeholders such as owners and managersare rationally regulated, it determines the effectiveness of bank management. Since the launch ofjoint-stock system reform for state-owned commercial banks, governance structureof Chinesecommercial banks has been constantly improved, and that provides sound support for healthyand continuous development of the national economy.Governance structure of banks can be divided into internal governance structure andexternal governance structure, research on the former one is relatively mature, while research onthe latter one is still on the start-up stage. The particularity of commercial banks deepen thecomplexity of their corporate structure, as a result, corporate structure of commercial banksshould not be limited to internal governance, should be extended to external governance and atthe same time consider its particularity in order toprotect stakeholders.This paper is intended to study how internal and external governance structure of banksaffect performance. We use ownership nature, ownership concentration, size of board, proportionof independent directors, executives’ cash pay to measure aspects of internal governance; we usechange of product market competition, leverage degree, loan quality and liquidity degree tomeasure aspects of external governance. The sample data comes from16listing banks of Chinafrom2007to2012. Then, we perform empirical study on how their corporate governancestructure affects performance. The result shows that, in internal governance structure, thestate-owned shares portion and executives’ cash pay both have significant negative impact onperformance, and general legal person shares portion has significant positive impact onperformance. When it comes to external governance structure, product market competition andleverage degree both have significant negative impact on performance, loan quality haspositivesignificant impact on bank performance.Other variables have no significant effect onperformance.At last, raise policy suggestion for improving corporate governance structure of commercial banks. Efforts in following aspects should be done: to improve ownership structure; to build ascientific inventive mechanism; to boost market competition in suitable pace; to construct ascientific and effective supervision and management mechanism.