| The opening up of the banking system is an objective requirement of global economic integration,and it is also an important part of deepening of the reform of the financial system in China.In the latest decade,the level of financial openness in China has been steadily improved,providing a sound operating environment for foreign banks.However,the common problems of foreign banks such as limited business size and insufficient profitability are gradually presented.Most foreign banks lack competitive advantages in operating in China and need to break the bottleneck of localized development.According to Institutional Theory,in the process of expanding business areas overseas,multinational companies have "Liability of foreignness" due to their differences in institutional environment with host countries.Institutional distance is closely related to the operating strategy and performance of MNCs’ overseas subsidiaries.This paper conducts an empirical study on the relationship between institutional distance and the operating performance of foreign banks in China based on the data of 41 foreign banks operating in China from the year 2013 to 2019.The results show that the regulatory distance and normative distance has a significant negative relationship with the operating performance of foreign banks’subsidiaries in China,and the assets size of foreign banks can effectively adjust the negative impact of regulatory distance on their operating performance,while the mitigation of the impact of normative distance is unclear.In addition,this paper provides a reference to foreign banks to optimize their management ideas.With the high level opening up of China’s banking system,foreign banks in China will usher in a broad market prospect and face more challenges at the same time.Foreign banks should focus on breaking the bottleneck of localization,mitigate the negative effects of institutional distance by improving regulatory research,strengthening the relationship between local governments,accelerating the development of business networks and digging into local market,in order to actively explore business opportunities within compliance scope. |
