Shelagh
A. Heffernan Correspondences.a.heffernan@city.ac.uk
& Xiaoqing Fu
Pages 1585-1600
Published
online: 21 Sep 2010
China's banking system has undergone gradual reform since 1978, with a view
to improving efficiency and resource allocation. Recent reforms have focused on
allowing banks to list some shares on domestic and foreign exchanges, greater
foreign equity participation in Chinese banks and the establishment of new
rural financial institutions. To assess whether these objectives have been
achieved, this study looks at how well different types of Chinese banks have
performed between 1999 and 2006, and tests for the factors influencing performance.
It also evaluates four measures of performance to identify which one, if any,
is superior. The independent variables include the standard financial ratios,
those which reflect more recent reforms (listing, bank type, the extent of
foreign ownership) and macroeconomic variables. The results suggest Economic
Value Added (EVA) and the Net Interest Margin (NIM) do better than the more
conventional measures of profitability, namely Return On Average Equity (ROAE)
and Return On Average Assets (ROAA). Some macroeconomic variables and financial
ratios are significant with the expected signs. Though the type of bank is
influential, bank size is not. Neither the percentage of foreign ownership nor
bank listings has a discernable effect.
