Yizhe Dong

The impact of foreign bank penetration on the domestic banking sector : New evidence from China

This study proposes a foreign bank branch networks index (FBBNI) to capture bank-level exposure to competition from foreign banks in terms of geographical proximity. The index takes account of the rapidly expanding branch networks of both foreign and domestic banks in China. Based on data from a sample of three types of Chinese commercial banks from 2002 to 2011, we find that exposure to the branch networks of foreign banks is associated with improved profitability at domestic banks, higher efficiency, and increased non-interest income, consistent with knowledge transfer from foreign banks. These relationships are most pronounced for joint-stock domestic banks presumably because their ownership structure fosters knowledge transfer.

The End of Imagination? Understanding New Developments in Microfinance

Microfinance drew attention to itself beginning the day it was born. From day one, its fate was hotly debated by ever-colliding camps of ardent supporters and staunch critics. In this chapter, we provide an in-depth discussion on microfinance revolution and promise. We summarize the highlights of the growing literature on microfinance that have accumulated over the past three decades. The new features of the microfinance sector also are discussed in the chapter.

Effects of Heterogeneity on Measuring Efficiency Scores: The Case of China’s Banking Sector

This study aims to investigate the significance of adequately accounting for heterogeneity in banking efficiency. It compares different specifications of stochastic cost frontier models which attempt to account for bank heterogeneity in various ways. This study compares the estimated parameters from five different specifications, conducts a specification test and discusses the effect of accounting for the heterogeneity on efficiency scores and rankings. The findings indicate that heterogeneity across banks could influence production directly, through the cost frontier, or indirectly through its effect on efficiency. This study concludes that accounting for the heterogeneity in the sample of Chinese banks is an important issue which, if not taken into account, may lead to biased estimates of banking efficiency.

Socially Responsible Lending

This paper studies socially responsible lending (SRL) by examining a unique sample of Chinese commercial banks. We define SRL as loans that are issued to promote social welfare, preserve the environment, develop agriculture, or support small business. We find that state-controlled banks issue less SRL than private banks, which rely on SRL to build credibility and enhance corporate image. Among state-owned banks, central-government-controlled ones respond to SRL-related polices more actively than others. The public sector experience of board directors is associated with more SRL. Finally, board independence and better-educated directors are found to increase SRL.

Impact of Foreign Bank Entry on the Performance of Chinese Banks

Since China joined the World Trade Organization (WTO) in 2001, the Chinese banking sector has entered a new era. In order to comply with its WTO commitments, the Chinese government has progressively removed regulatory obstacles and adopted numerous reforms to open up its banking sector to competition-both domestic and foreign. Regulation and supervision within the Chinese banking sector have also improved in order to meet international standards. Over the five-year period following entry into the WTO, the geographical coverage and business scope restrictions on foreign banks have gradually been removed. Since December 2006, all Chinese cities have allowed locally incorporated foreign banks to engage in both local and foreign currency business with all types of customers, and the Chinese banking sector has been fully opened up. The total assets of foreign banks reached 1.7 trillion RMB in 2010, with an average annual growth rate of 20.3 percent over the period from 2002 until 2010.

Independent Directors and Corporate Performance in China

Guidelines issued by the China Securities Regulatory Commission (CSRC) require companies to appoint independent directors to their boards. According to the Guidelines about Establishing an Independent Director System in Listed Companies, ever since 2002, it has been a requirement to have at least two independent directors. This rule was amended in 2003, requiring at least one third of board members to be independent. Thus, independent directors play an important part in China’s corporate governance reform.1 In western developed countries, former and current executives are the main sources of independent directors. In China, however, people of varying backgrounds, including academics and politicians, are often appointed. Since independent directors are pivotal to a firm’s governance, the main objective of this study is to explore whether the background of an independent director has any association with the performance of the firm they work for.