Corporate Governance Of State-owned Commercial Banks Optimization Theory

Research shows that banks are critically important for economic growth and development. When banks efficiently mobilize and allocate funds, this lowers the cost of capital to firms, boosts capital formation, and stimulates productivity growth. Thus, a well-developed financial system and the functioning of banks can promote the prosperity of nations.In the wake of financial crisis in East Asia and the recent corporate scandals, corporate governance practices have received heightened attention, but the corporate governance of banks has been ignored by researchers. Given the importance of banks, good and sound corporate governance of banks is key to the success of a bank, and the governance of banks themselves assumes a crucial role. If bank managers face sound governance mechanisms, they will be more likely to allocate capital efficiently and exert effective corporate governance over the firms they fund. In contrast, if banks managers enjoy enormous discretion to act in their own interests rather than in the interests of shareholders and debt holders, then banks will be correspondingly less likely to allocate society's savings efficiently and exert sound governance over firms.The economic development attained by PRC over more than two decades has been exceptional, and sustained growth and development has also come along a substantive poverty reduction. PRC's success story may have something to do with its gradualist approach to reform and transition from planned to market economy. PRC's accomplishments make the world surprised, but the safety and risk of weak banking also causes the world worry, especially that of four State-owned Commercial Banks (SOCBs).SOCBs in PRC include Industrial and Commercial Bank of China (ICBC), Bank of China (BC), China Agriculture Bank (CAB), and China Construction Bank(CCB), which have an overwhelmingly dominant position in PRC's financial system, are extremely important engines of economic growth, and are typically the most important source of finance for the majority of firms(particularly for Stated-owned Enterprises). As well as providing a generally accepted means of payment, which are the main depository for the economy's savings. However, the sick banking system, especially inefficiency of SOCBs, loaded with huge burdens of Non-performing loans, is dysfunctional; it does not enforce governance on firms, leading to further misallocation and possibly inducing a credit crunch.As a part of the reform of economic system, China's financial system reform is the most important. In order to construct a well-functioned bank system, PRC has taken measures to resolve the problems of SOCBs, such as forming 4 Capital Asset Management Corporations to deal with bad loans in SOCBs, issuing special national bond to supplement capital asset of SOCBs, attracting strategic investors both domestically and internationally, diversifying ownership structure and financial restructuring.Because SOCBs derive from China's development strategy, they not only functioned as a financial intermediation,but also to perform state preferred objects. Because of location of...