Abstract
Although recent studies in corporate governance have paid notable attention to the value of political connections and the performance of corporate boards following a wave of scandals across the globe, we know relatively little about whether the distribution of power between politically connected CEOs and the composition of board of directors has much impact on managerial risk- taking behaviour in emerging countries. In this study we examine the impact of politically connected CEO, the monitoring role of independent directors and the extent of the actual control of ownership concentration on credit risk in Chinese banks over the period of 2003-2014. We used two-step system generalized method of moment (SGMM) to measure a sample data of 88 banks in Chinese commercial banks. Subsequent robustness checks, were conducted by adding governance variables and different time periods to support main results and address the endogenous problems by using the two-step system generalized method of moment (SGMM) estimator.
Overall, our study sheds light on the influences of political connections on credit risk in Chinese commercial banks (i.e. GOBs & POBs). This study can be used to equilibrate the distribution of power in respect of monitoring arrangement and decision-making on credit risk, contribute to the agency theory and resource dependence theory. In fact, this study has the implication of good corporate governance which is able to ameliorate excessive risk-taking and control credit risk.
- Introduction to the Study
1.1. Background of the Study........................................................................................ 1
1.2. Motivation for the Study........................................................................................ 1
1.3. Aim and Objectives................................................................................................ 3
1.4. The Reason of Choice of Chinese Commercial Banks.......................................... 3
1.5. The Definition and Scope of the Study.................................................................. 3
1.6. Contribution and Policy Implications.....................................................................4
1.7. Structure of the Thesis............................................................................................4
- Literature Review I: Theoretical Perspectives
2.1. Introduction............................................................................................................ 4
2.2. Theories of Corporate Governance (CG)............................................................... 4
2.2.1. Agency Theory............................................................................................... 5
2.2.2. Stewardship Theory........................................................................................6
2.2.3. Resource Dependency (RD) Theory...............................................................8
2.2.4. Stakeholder Theory.........................................................................................8
2.3. Mechanisms of Corporate Governance.................................................................. 9
2.3.1. Internal Corporate Governance (ICG)............................................................9
2.3.2. External Corporate Governance (ECG)........................................................11
2.4. Risk & Measurement............................................................................................11
2.4.1. Risk...............................................................................................................11
2.4.2. Credit Risk....................................................................................................12
2.4.3. Non-Performing LoanRatio (NPLR)............................................................12
2.4.4. Loan Loss Provision Ratio (LLPR)..............................................................13
2.5. Corporate Governance Mechanisms & Risk-Taking Behaviours........................ 14
2.6. Bank Risk-Taking Behaviours & Credit Risk...................................................... 14
- Literature Review II: Evolution and Developments in Chinese Banking System
3.1. Introduction.......................................................................................................... 15
3.2. Banking Sector Reforms in China........................................................................15
3.2.1. Phase 1: Banking and Credit Market in Communist China (1949-1978).....15
3.2.2. Phase 2: Banking Sector Reforms and Institutional Restructuring
Period (1979-1994).............................................................................................. 16
3.2.3. Phase 3: Commercialisation of the Chinese Banking Industry (1995-2000).17
3.2.4. Phase 4: WTO Entry and Further Reforms (2001-2014)............................. 17
3.3. Political Connections (PCs) & Corporate Governance Mechanism (CGM) in
China....................................................................................................................21
3.4. Current Structure of Chinese Banking System.....................................................22
3.4.1. Chinese Banking and Post-GFC...................................................................24
3.5. Corporate Governance Reforms in China............................................................ 28
Ⅰ3.5.1. Ownership Structure in Chinese Commercial Banks................................... 28
3.6. Loan Portfolio and Bank Financing in China.......................................................31
3.7. Hypothesis Development......................................................................................34
3.7.1. Hypotheses about Politically Connected Boards..........................................36
3.7.2. Hypotheses about Ownership Concentration............................................... 39
- Design of Research Methodology
4.1. Introduction.......................................................................................................... 40
4.2. Research Philosophies.......................................................................................... 41
4.3. Quantitative and Qualitative Research Approaches............................................. 42
4.4. Choice and Justification of Research Method...................................................... 42
4.5. Data Collection and Sample Selection................................................................. 43
4.5.1. Sample Selection.......................................................................................... 44
4.5.2. Time Period.................................................................................................. 48
4.5.3. Description of Variables...............................................................................48
4.5.4. The Sources of Variables..............................................................................49
4.5.5. Statistic Data.................................................................................................49
4.6. Ethical Considerations..........................................................................................50
- Politically Connected CEO, Independent Directors and Credit Risk:
Evidence from Chinese Commercial Banks
5.1. Introduction.......................................................................................................... 51
5.2. Measurement of Variables....................................................................................51
5.2.1. Dependent Variables.....................................................................................52
5.2.2. Independent Variables.................................................................................. 53
5.2.3. Control Variables..........................................................................................53
5.3. Econometric Model.............................................................................................. 56
5.4. Univariate Analysis and Discussions................................................................... 57
5.4.1. Summary Statistics....................................................................................... 57
5.4.2. Correlation Matrix........................................................................................ 58
5.4.3. Regression Results & Discussion.................................................................60
- Impact of Ownership Concentration on Credit Risk of Chinese Commercial
Banks
6.1. Introduction ......................................................................................................... 68
6.2. Measurement of Variables....................................................................................68
6.2.1. Dependent Variables.....................................................................................69
6.2.2. Independent Variables.................................................................................. 69
6.2.3. Control Variables..........................................................................................69
6.3. Econometric Model.............................................................................................. 72
6.4. Univariate Analysis and Discussions................................................................... 73
6.4.1. Summary Statistics....................................................................................... 73
6.4.2. Correlation Matrix........................................................................................ 75
Ⅱ6.4.3. Regression Results & Discussion.................................................................77
- Summary & Conclusions
7.1. Introduction.......................................................................................................... 87
7.2. Methodology Summary........................................................................................ 87
7.3. Main Empirical Contributions..............................................................................88
7.3.1. Politically Connected CEO, Board Independence & Credit Risk................ 88
7.3.2. Ownership Concentration & Credit Risk......................................................89
7.4. Contribution and Implications of the Thesis........................................................ 89
7.5. Generalization and Limitations of the Study........................................................91
7.6. The Direction of Future Research........................................................................ 92
Notes
Reference
Appendices
Liu Yang, was born in May 1978. I am now a teacher of University of Jinan, studying for a doctorate in finance at the Glasgow Caledonian University in the UK. My undergraduate and Master both graduate fromthe Shandong University, and has long been engaged in the field of financial and economic research, published many academic papers, including two SSCI searches, presided over provincial projects and participated in the research of many topics (i.e. national, provincial, university levels).