Has Minority Foreign Investment in China's Banks Improved Their Cost Efficiency?

Laurenceson, James; Qin, Fengming

doi:10.1111/j.1749-124x.2008.00114.x

Cited by 31 publications

(29 citation statements)

References 17 publications

(24 reference statements)

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“…By enhancing the efficiency of capital market infrastructure, China has made great efforts towards changing its accounting regulations (Chen, Wang and Zhao, 2009). With the ongoing liberalisation of the Chinese economy and the increasingly competitive business environment, the need for Chinese firms to ensure greater efficiency and improve the quality of their financial reporting have become understandably very high (Laurenceson and Qin, 2008).…”

Section: Introductionmentioning

confidence: 99%

Does Regulatory Environment affect Earnings Management in Transitional Economies? An Empirical Examination of the Financial Reporting Quality of Cross-Listed Firms of China and Hong Kong

Nnadi¹,

Omoteso²,

Yu³

2015

Neo-Transitional Economics

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Purpose: This paper provides evidence on the impact of regulatory environment on financial reporting quality of transitional economies. This study compares the financial reporting quality of Hong Kong firms which are cross-listed in mainland China with those of Hong Kong firms cross-listed in China using specific earnings management metrics (earnings smoothing, timely loss recognition, value relevance and managing towards earnings targets) under pre and post IFRS regimes. Design/Methodology:The financial reporting quality of Chinese A-share companies and Hong Kong listed companies are examined using earnings management measures. Using 2007 as base year, the study used a cumulative of -5 and +5 years of convergence experience which provide a total of 3,000 firm year observations. In addition to regression analyses, we used the difference-in-difference analysis to check for the impact of regulatory environments on earnings management. further shows that accounting data are more value relevant for Hong Kong listed firms, and that firms listed in China are more likely to engage in accrual-based earnings management than in real earnings management activities. We established that different earnings management practices that are seemingly tolerable in one country may not be tolerable in another due to level of differences in the regulatory environments.Research Implications: The findings show that Hong Kong listed companies' exhibit higher level of financial reporting quality than Chinese listed companies, which implies that the financial reporting quality under IFRS can be significantly different in regions with different institutional, economic and regulatory environments. The results implies that contingent factors such as a country's institutional structures, its extent of regulation and the strength of its investor protection environments impact on financial reporting quality particularly in transitional and emerging economies. As such, these factors need be given appropriate considerations by financial reporting regulators and policy makers interested in controlling earnings management practices among their corporations.3 Originality/Value: This study is a high impact study considering that China plays a significant role in today's globalized economy. This study is unique as it the first, that we are aware of, to compare real earnings activities against accrual-based earnings management in pre and post IFRS adoption periods within the Chinese and Hong Kong financial reporting environments, distinguishing between cross-listed and non-cross-listed firms.

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Section: Introductionmentioning

confidence: 99%

Does Regulatory Environment affect Earnings Management in Transitional Economies? An Empirical Examination of the Financial Reporting Quality of Cross-Listed Firms of China and Hong Kong

Nnadi¹,

Omoteso²,

Yu³

2015

Neo-Transitional Economics

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“…Foreign financial institutions have much higher incentives for technology transfer if they hold large equity shares of Chinese banks. However, low equity stake potentially provides insufficient incentives to transfer technologies to Chinese banks, because foreign investors can receive only a small part of the increased value (Laurenceson & Qin, 2008). Foreign financial institutions have large equity stake in CCBs, RCBs and most JOCBs than that of SOCBs, so they have more incentive to transfer technologies to CCBs, RCBs and most JOCBs.…”

Section: Proposition 2：more Directors Sent By Foreign Financial Instimentioning

confidence: 99%

“…Moreover, Berger et al (2009) analyzed the efficiency of 38 Chinese banksover [1994][1995][1996][1997][1998][1999][2000][2001][2002][2003], and found that minority foreign ownership is associated with significantly improved efficiency and minority foreign ownership of the Big Four will likely improve performance significantly.However, Shen et al (2009) Berger et al (2009) found positive and significant impact of foreign bank entry. Shen et al (2009), Laurenceson andQin (2008), and Yuan and Gunji (2009) found no impact or small impact of the foreign entry. One main reason for the inconsistent results is that they don't consider the variety of Chinese banks which is strategically invested by foreign financial institutions.…”

Section: Introductionmentioning

confidence: 99%

The Mechanism of Foreign Strategic Investment Affecting Efficiency of Chinese Banks

Li¹,

Xu²,

Yuan³

2014

IJEF

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Foreign financial institutions' strategic investment in China's banking sector is to acquire certain equity stake of Chinese banks and provide business assistance and cooperation to them, and it is one of the important foreign bank entry modes in China. This paper explores the impacting mechanism of foreign strategic investment on efficiency of different types of Chinese banks. Foreign strategic investments have several characterisitics: foreign equity ownership should be less than 20% for one strategic investor; foreign financial institutions could send foreign directors to Chinese bank board; they must provide business cooperation with Chinese banks; their equity share must be locked up at least in 3 years. We propose that foreign financial institutions have more incentive to improve the efficiency of smaller Chinese banks which include city commercial banks, rural commercial banks, and most joint-owned commercial banks; foreign directors also have more incentive to improve the corporate governance of smaller Chinese banks; foreign financial institutions would likely to transfer more technology to smaller Chinese banks than that to big Chinese banks, which mainly are the state-owned commercial banks. The longer holding periods of Chinese banks equity also make foreign financial institutions have more incentive to improve the efficiency of Chinese banks. In addition, the interest conflict between state-owned commercial banks and their foreign investors is larger than that between smaller Chinese banks and their foreign investors.

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“…Previous studies had also explored the relationship between the efficiency of the banks, profitability, risks and ownership structure (Yao et al, 2004;Zhang, 2003;Qian, 2003;Zheng and Cao, 2005;Wang and Tan, 2007;Laurencenson and Qin, 2008). Banks that were more profitable, with higher ROA and ROE, appeared to be more efficient, whereas banks with poor cost control, with higher ratios of cost-to-income or total cost to total assets, were less efficient (Yao et al, 2004).…”

Section: Efficiency Studies Of the Chinese Banking Sectormentioning

confidence: 99%

The Development of the Chinese Financial System and Reform of Chinese Commercial Banks

Luo¹

2016

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Has Minority Foreign Investment in China's Banks Improved Their Cost Efficiency?

Cited by 31 publications

References 17 publications

Does Regulatory Environment affect Earnings Management in Transitional Economies? An Empirical Examination of the Financial Reporting Quality of Cross-Listed Firms of China and Hong Kong

Does Regulatory Environment affect Earnings Management in Transitional Economies? An Empirical Examination of the Financial Reporting Quality of Cross-Listed Firms of China and Hong Kong

The Mechanism of Foreign Strategic Investment Affecting Efficiency of Chinese Banks

The Development of the Chinese Financial System and Reform of Chinese Commercial Banks

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