The Effect of Foreign Strategic Investment on Chinese Banks’ Corporate Governance

This paper employ hand-collected data concerning foreign strategic investment and corporate governance in the Chinese banking sector, we examine whether foreign strategic investment improve the corporate governance of Chinese banks and whether corporate governance improve performance of Chinese banks. We found that foreign strategic investment increases the binding force for top three shareholders in state-owned commercial banks and national joint-stock commercial banks. The binding force for the first largest shareholder could reduce their decision making power and improve the ROE, CAR, and NPL of Chinese banks. No matter for state-owned commercial banks and national joint-stock commercial banks or rural-owned commercial banks and city commercial banks, the binding force for top three shareholders enhances their performance.