A Research On Mechanism Of Banks Involving In Corporate Governance

There is typical asymmetric information between banks and corporate borrowers, and the corporate borrowers have the incentive to adverse selection and moral hazard around the moment of signing the contract of borrowing. In order to secure the returns of their investments, the banks require the supervision on the corporate borrowers.This paper develops in line with the different stages of capital transfer from banks to corporate borrowers. Firstly, it theoretically analyses the ex ante involving, in-between involving and ex post involving of the banks into the corporate borrowers, and argues that for ex ante involving, i.e. before the signature of the borrowing contract, banks should discriminate the information to screen different borrowers; for in-between involving, i.e. during the signature of the borrowing contract, banks should decide whether to provide supervision by considering the cost and return of the supervision. If the cost is too huge, the return will be relatively small, so it is profitable not to provide supervision; for ex post involving, i.e. when the corporate borrowers come into financing difficulties and facing difficulties of returning the borrowing capital, to liquidate the problem corporate borrower is not the best choice of banks, they should rather make a choice between the liquidation and the debt re-negotiation. Secondly, it compares the ex ante, in-between and ex post involving of banks in America, Germany, Japan, and argues that because of the different cultural, traditional and legal influence, the degrees of the involving into the corporate governance of their banks are different. German and Japanese banks prefer involving into the corporate governance, and manage the whole three stages of the supervision on the corporate borrowers, however, American banks take negative attitudes towards the directly and frequently involving, and prefer discharging the supervision duty to those financial institutions providing professional and specialized supervision.