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The Impact of Foreign Entry on Chinese Banks
Author(s) -
Li Yuhua,
Uchida Konari,
Xu Tongsheng,
Wu Zhaoyang
Publication year - 2016
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12219
Subject(s) - business , foreign direct investment , profit (economics) , banking industry , foreign ownership , financial system , monetary economics , retail banking , economics , finance , microeconomics , macroeconomics
Utilizing hand collected data concerning foreign ownership in the Chinese banking sector, we examine whether foreign ownership improves the efficiency of Chinese banks. Foreign banks tend to provide cooperation in retail banking rather than in corporate or private banking. We find no robust evidence of an improvement in the efficiency of an average bank that receives foreign strategic investments. However, the bank cost and profit efficiency significantly improve when foreign strategic investments provide retail banking and internal control assistance respectively to local banks. These findings suggest that foreign investment improves local bank efficiency when it transfers technologies that are lacking in local banks.