Research On The Driving Factors And Performance Of Foreign Banks' Transformation In China

The opening up of China's banking industry is consistent with the requirement of global economic integration,and it is also an important move of China's financial system reforming.Due to the double-sided influence of the entry of foreign investment in the banking industry,Chinese government has progressively lower the restrictions on foreign banks under the premise of controllable risk.In November 2006,the CBRC promulgated the Regulations on the Administration of Foreign Banks,encouraging and guiding foreign banks to establish or convert into legal subordinates,granting them national treatment.Foreign banks have become an vital component of China's banking industry after the development in a decade.Some of the foreign bank subsidiaries gradually gain a foothold in Chinese market,while some failed and withdrew from Asian market.The gap of the performance among these banks has gradually widened.The theoretical basis of this paper includes Transaction Cost Theory,New Institutional Theory and Organizational Learning Theory.The study is focused on two key questions:(1)The driving factors of foreign banks' transforming.(2)The performance of these foreign bank subsidiaries.To solve the first question,firstly this paper classifies factors that may affect foreign banks' entry mode choice,and then constructs the comprehensive organizational change framework:"Motivation-Opportunity-Ability".Then this paper uses survival analysis method to explore the influence of each factors as well as the interaction between motivation,opportunity and ability.To solve the second question,this paper first extracts the Inverse Mills Ratio from previous work to control the sample selection bias.In this paper,local isomorphism strategy is divided into two dimensions:asset isomorphism and product isomorphism.Two-stage Least Squares Method is used to construct the regression model to examine the influence of local isomorphism and country difference on the performance of foreign bank subsidiaries.Unbalanced panel data from 2006 to 2014 is used during the study.The sample in the first phase includes 94 foreign banks in China.The empirical results show that the distribution strategy in China,preference for political center,operating experience in China and the distribution of overseas sub-branches are positively correlated to the transforming,while cultural distance and the industry regulation of China have negative impact on it.In addition,operating experience in China weakened the disadvantage caused by cultural distance and industry regulation.International competence,especially the proportion of overseas subsidiary assets can also reduce the negative effect of distribution strategy in China.The sample in the second phase includes 33 wholly-owned subsidiaries established by the foreign banks above.The results show that both two dimensions of the local isomorphism strategy can help to improve the performance of foreign bank subsidiaries.Finally,this paper provides some recommendations about policy making and supervising for relevant government departments and suggestions about managing strategy for both foreign banks and China's domestic commercial banks.Limitations of this study and the direction of future research are summarized at the end of this paper.