Foreign strategic investors and bank credit risk in China: Disclosure, finance or management effects?

Lin Yuan, Yang Zhong and Zhou Lu

Pacific-Basin Finance Journal, 2022, vol. 73, issue C

Abstract: By using the two-way fixed effects model and Chinese bank data from 2003 to 2015, this paper studied the influence of foreign strategic investors (FSIs) on bank credit risk in China and tested the possible disclosure effect, management effect and financial effect. The research found that FSIs improved the information disclosure of local banks and enhanced the level of corporate governance. It is found that FSIs increased the NPL ratio of banks by 0.47% on average, mainly in the first 3 years due to the time lag, which is mainly attributed to the improved information disclosure of local banks. Based on the superposition effect, the study concluded that FSIs improved credit risk management and reduced the NPL ratio in the long term. In the mechanism test, loan growth and nonperforming loan write-offs had no effect on the coefficients of foreign shares, which excluded the possible financial effect; meanwhile, FSIs had no significant effect on yield either economically or statistically, which excluded the “high-yield, high-risk” market-based pricing mechanism. In the heterogeneity analysis, FSIs affected mainly the top five state-owned Chinese banks and joint-stock banks, while the impact of urban commercial banks was insignificant. The reason is probably that the top five state-owned banks and joint-stock banks are more important in Chinese banking industry and the government and regulators pay more attention to them. As a result, the reform is more standardized and thorough.

Keywords: Foreign strategic investors; Non-performing loans; Disclosure effect (search for similar items in EconPapers)
JEL-codes: G21 G32 G34 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:73:y:2022:i:c:s0927538x22000579

DOI: 10.1016/j.pacfin.2022.101762

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