Research On The Relationship Between Governance Structure And Banks’ Innovative Capacity, Performance

As the core of the financial system, the sustained and healthy development of commercial banks plays an important role to the economic and financial development And innovation is the fundamental power of commercial bank’s sustained development, all their development are the result of the improvement of innovative capacity. Particularly, in the context of global economic integration and the deepen openness of China’s banking industry, the traditional model of relying on deposits and loans expansion to increase profitability which is highly homogeneous can not meet market demand anymore. How to improve the innovative capacity of commercial banks to improve their competitiveness in the global market becomes a hot point of government, bank and the academic circles.Among the factors of influencing commercial bank’s innovative capacity, effective governance structure is a very important aspect. However, as a result of the opaqueness of product contracts, the particularity of business objectives, the complexity of the agency relationship, the particularity of capital structure and strict industry regulation, the impact on commercial banks is different from the general enterprise. The competition mechanism in product market, the creditor supervision mechanism in capital market and the threat of takeover in control right market, which all play important role in the general enterprise are not applicable to the banks. Furthermore, taking the current economic situation, our country’s market economy’s imperfectness and the government’s intervention in banks into consideration, the internal governance structure has a greater influence to the innovative capacity of commercial banks.According to this, with the definition of commercial banks’ innovative capacity, the paper chooses ownership structure, the characteristics of board of directors, executive incentive as the proxy variable of governance structure. Through theoretical and empirical analysis, we explore the influence of commercial bank governance structure on innovative ability and explore whether the innovative ability is a intermediary variable to bank’s performance.The paper chooses 48 commercial banks from 2005 to 2012 as the study sample, chooses intermediate business income divided by operating income as the measure index of innovative capacity. Through statistical analysis we find large individual difference and lower overall level among commercial bank’s innovative capacity which have a huge gap with the international commercial bank and suggest the urgency to improve our commercial banks. Then Through theoretical and empirical analysis we find that the proportion of top five shareholders, the first major shareholders holding ability, the proportion of independent directors, executive compensation are positive correlation to innovative ability; the state-owned nature of the first major shareholder, the scale of the board of supervisors are negative correlation to innovative ability; the influence of the scale of the board of directors, the chairman and managing director as a whole, executive ownership do not pass the test of significance.Furthermore, to verify the intermediary effect of innovative capability on performance, based on the empirical analysis of governance structure to innovation, we first prove the significant effect of governance structure to performance and then use governance structure and innovative ability jointly as independent variables to regress with performance. We find that after adding innovative ability as argument, the original significance of governance structure to performance is reduced or absent, which means that innovative capability is a intermediary variable to bank performance. Innovation ability as a transmission mechanism plays an important role in the influence of governance structure to bank performance.At last, based on the theoretical and empirical analysis above, we find that moderate concentration of ownership and the system of independent directors in favor of the improvement of bank’s innovative ability and performance, while the state-owned holding on the contrary; board of supervisors will help improve bank performance but is not conducive to improving innovative ability; the board failed to play its due role in the improvement of innovative capacity; monetary incentive for executives will encourage executives to innovate and launch innovative business which improve the innovation ability, but this improvement failed to effectively converted into bank performance growth; the equity incentive for executives failed to have a significant impact on the ability to innovate.