Governance, efficiency and risk taking in Chinese banking

Yizhe Dong; Claudia  Girardone; Jing-ming Kuo

doi:10.1016/j.bar.2016.08.001

Governance, efficiency and risk taking in Chinese banking

Yizhe Dong, Claudia Girardone (Corresponding Author), Jing-ming Kuo

Accountancy & Finance, Finance

Research output: Contribution to journal › Article › peer-review

100 Citations (Scopus)

Abstract

We employ a hand-collected unique dataset on banks operating in China between 2003 and 2011 to investigate the impact of board governance features (size, composition and functioning) on bank efficiency and risk taking. Our evidence suggests that board characteristics tend to have a greater influence on banks' profit and cost efficiency than on loan quality. We find that the proportion of female directors on the board appears not only to be linked to higher profit and cost efficiency but also to lower traditional banking risk. Similarly, board independence is associated with higher profit efficiency of banks; while the opposite is found for executive directors and in the presence of dual leadership of the CEO/chairperson. Among the control variables, we found that liquidity negatively affects profit and cost efficiency, while positively affecting risk. Interestingly, we find some evidence of an incremental effect of specific board characteristics on efficiency for banks with more concentrated ownership structures and state-owned institutions; while for banks with CEO performance-related pay schemes the effect on efficiency when significant is usually negative. Our results offer useful insights to policy makers in China charged with the task of improving the governance mechanisms in banking institutions.

Original language	English
Pages (from-to)	211-229
Number of pages	19
Journal	British Accounting Review
Volume	49
Issue number	2
Early online date	15 Aug 2016
DOIs	https://doi.org/10.1016/j.bar.2016.08.001
Publication status	Published - Mar 2017

Bibliographical note

We thank the Editors, Nathan L. Joseph and Alan Lowe, the Guest Editors, Philip Molyneux and John O.S. Wilson, two anonymous referees, and our discussants Alexandre M. Baptist and Kais Bouslah for their useful comments and suggestions. We are grateful to Barbara Casu for many helpful discussions. We also thank participants at the Banking, Finance, Money and Institutions conference (University of Surrey, 2013); European Financial Management Association (Amsterdam, 2015); British Accounting and Finance Association (Manchester, 2015) and the Contemporary Issues in Banking conference (University of St Andrews, 2015). Claudia Girardone acknowledges support from grant number ES/L011859/1, from The Business and Local Government Data Research Centre, funded by the Economic and Social Research Council to provide researchers and analysts with secure data.

Keywords

Board governance
Bank efficiency
Asset quality
Bank ownership
Performance-related compensation
Chinese banking sector

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Cite this

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title = "Governance, efficiency and risk taking in Chinese banking",

abstract = "We employ a hand-collected unique dataset on banks operating in China between 2003 and 2011 to investigate the impact of board governance features (size, composition and functioning) on bank efficiency and risk taking. Our evidence suggests that board characteristics tend to have a greater influence on banks' profit and cost efficiency than on loan quality. We find that the proportion of female directors on the board appears not only to be linked to higher profit and cost efficiency but also to lower traditional banking risk. Similarly, board independence is associated with higher profit efficiency of banks; while the opposite is found for executive directors and in the presence of dual leadership of the CEO/chairperson. Among the control variables, we found that liquidity negatively affects profit and cost efficiency, while positively affecting risk. Interestingly, we find some evidence of an incremental effect of specific board characteristics on efficiency for banks with more concentrated ownership structures and state-owned institutions; while for banks with CEO performance-related pay schemes the effect on efficiency when significant is usually negative. Our results offer useful insights to policy makers in China charged with the task of improving the governance mechanisms in banking institutions.",

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note = "We thank the Editors, Nathan L. Joseph and Alan Lowe, the Guest Editors, Philip Molyneux and John O.S. Wilson, two anonymous referees, and our discussants Alexandre M. Baptist and Kais Bouslah for their useful comments and suggestions. We are grateful to Barbara Casu for many helpful discussions. We also thank participants at the Banking, Finance, Money and Institutions conference (University of Surrey, 2013); European Financial Management Association (Amsterdam, 2015); British Accounting and Finance Association (Manchester, 2015) and the Contemporary Issues in Banking conference (University of St Andrews, 2015). Claudia Girardone acknowledges support from grant number ES/L011859/1, from The Business and Local Government Data Research Centre, funded by the Economic and Social Research Council to provide researchers and analysts with secure data.",

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N2 - We employ a hand-collected unique dataset on banks operating in China between 2003 and 2011 to investigate the impact of board governance features (size, composition and functioning) on bank efficiency and risk taking. Our evidence suggests that board characteristics tend to have a greater influence on banks' profit and cost efficiency than on loan quality. We find that the proportion of female directors on the board appears not only to be linked to higher profit and cost efficiency but also to lower traditional banking risk. Similarly, board independence is associated with higher profit efficiency of banks; while the opposite is found for executive directors and in the presence of dual leadership of the CEO/chairperson. Among the control variables, we found that liquidity negatively affects profit and cost efficiency, while positively affecting risk. Interestingly, we find some evidence of an incremental effect of specific board characteristics on efficiency for banks with more concentrated ownership structures and state-owned institutions; while for banks with CEO performance-related pay schemes the effect on efficiency when significant is usually negative. Our results offer useful insights to policy makers in China charged with the task of improving the governance mechanisms in banking institutions.

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Governance, efficiency and risk taking in Chinese banking

Abstract

Bibliographical note

Keywords

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