Does bank ownership increase firm value? Evidence from China

Xiaochi Lin, Yi Zhang and Ning Zhu

Journal of International Money and Finance, 2009, vol. 28, issue 4, 720-737

Abstract: Direct bank ownership of company shares is believed to benefit borrowing companies in developed markets. However, little is known about how such bank relationship works in emerging markets, where the relative costs and benefits of such practice become less straightforward due to loose institutional background and weak governance. Utilizing novel data on bank equity ownership and board structure of listed companies in China, one of the leading emerging markets, we find that: 1. banks hold considerable shares of listed companies; 2. banks appoint board members through equity holdings; 3. bank ownership promotes company access to bank capital; 4. companies with banks as leading shareholders witness relatively poor operating performance. Such results are robust with alternative performance measures, industries, and sample periods. Further analysis indicates that inefficient investments resulting from bank ownership are responsible for the disappointing performance. Our results provide new insights to the debate regarding the merits of bank equity ownership of companies and emphasize how banking and corporate finance behave differently in emerging markets due to their unique institutional background

Keywords: Banking; Bank; ownership; Valuation; Emerging; markets; Chinese; financial; markets (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261-5606(09)00014-X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:28:y:2009:i:4:p:720-737

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().