Comparative Advantage Of Regional Banking Institutions: Evidence From Hunan Province

The issue of survival and development of small banks has been the focus ofacademic study, a large number of studies have shown that the presence of smallbanks can increase the efficiency of the financial system of financing and promotesocial and economic development. Foreign studies have found that small banks cannot keep abreast with large banks in the size of the business, market share and otheraspects, but their structure of organization determines that they can play a importantrole in market competition, and sometimes they even are superior to large banks inoperating performance. With the end of Shareholding reform of four state-ownedcommercial banks and the good development of the joint-stock banks, China’sbanking reform is focusing on gradually to the small banking institutions, such asurban and rural commercial banks and other financial institutions. This paper hasstudied whether China’s small banking institutions have formed and exert thecomparative advantages, and then provides some relevant policy recommendations forthe reform of small banks.This paper is based on the asymmetric information theory, principal-agent theoryand the structure-conduct-performance theory, these theories build a theoreticframework of comparative advantage of small banks which provides a theoreticalbasis for subsequent analysis. Actually, Comparative advantage of small banks isrelationship lending to SMEs in the following three areas: information advantage,structure performance (SP) advantage and agency cost advantage. And then separatelyfrom internal and external factors analyses the factors which affect the formation ofsmall banks’ comparative advantage. And then, taking Hunan province for example,we analyze whether China’s regional small bank institutions has formed and playedtheir comparative advantages and reasons. The conclusions as follows: Comparativeadvantage of small banks is not reflected in its operating performance. Thedistribution of the branch of regional banks lay the basis of information and SPadvantages. And regional banks actively use its advantages to SMEs and loans tofarmers, and therefore delegate more rights to grassroots managers, but bankinginstitutions within the region not fully exploited its SP benefits. Bank managers’preferences and quiet life behavior made regional small bank institutions’ cost-controlability weaker than large banks’, ultimately leading to its operating performance islower than national banks. To make regional bank institutions to form and play its comparative advantages,this paper combines theoretic analysis with empirical results and put forward somerelevant policy recommendations: complete the reform of rural credit cooperativesand create a good external environment.