An Empirical Study on the Impact of Foreign Strategic Investment on Banking Sustainability in China
In order to improve the banking sustainability in China, China’s government has announced that the restrictions on foreign shareholding ratio in domestic banks will be canceled. However, the effectiveness of foreign strategic investment needs checking. In addition, under the new policy, th...
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doaj-aa5b80ace9014471a108683203cfb9202020-11-24T22:18:00ZengMDPI AGSustainability2071-10502019-01-0111118110.3390/su11010181su11010181An Empirical Study on the Impact of Foreign Strategic Investment on Banking Sustainability in ChinaWanping Yang0Bingyu Zhao1Jinkai Zhao2Zhengda Li3School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710061, ChinaSchool of Economics and Finance, Xi’an Jiaotong University, Xi’an 710061, ChinaSchool of Economics and Finance, Xi’an Jiaotong University, Xi’an 710061, ChinaSchool of Management, Xi'an University of Architecture and Technology, Xi’an 710055, ChinaIn order to improve the banking sustainability in China, China’s government has announced that the restrictions on foreign shareholding ratio in domestic banks will be canceled. However, the effectiveness of foreign strategic investment needs checking. In addition, under the new policy, the method by which banks formulate appropriate internal decisions about introducing foreign strategic investment is an important issue for bank managers. Continuous productivity growth will bring sustainable development; therefore, the aims of this paper are: (1) to find the relationship between foreign strategic investment and productivity change of China’s banks, and to verify the effectiveness of introducing foreign strategic investment; (2) to find the optimal foreign shareholding ratio; (3) to show how foreign strategic investment affects the productivity of China’s banks, i.e. the transmission mechanism between them, and to provide bank managers with evidence and support for making decisions on introduction of foreign strategic investment. This paper employs the Malmquist-Luenberger index and combines it with Epsilon-based-measure to derive a new index, i.e. the EBM-Malmquist-Luenberger index, to measure the dynamic productivity change of China’s banks. In addition, the dynamic panel data and system GMM estimator are used to analyze the transmission mechanism as well as the impact of foreign strategic investment on the productivity of China’s banks. The results revealed three facts. First, when the foreign shareholding ratio increases within a given range, foreign strategic investment continuously improves the productivity and sustainability of China’s banks. Second, an inverse N-shaped relation between foreign strategic investment and productivity growth of China’s banks is supported, and the optimal foreign shareholding ratio is 20.16%. Last but not least, foreign strategic investment improves the productivity and sustainability of China’s banks, mainly through changing scale efficiency. The results of this paper may provide support for policy formulation of China’s banks.http://www.mdpi.com/2071-1050/11/1/181bank productivityforeign strategic investmentEBM-Malmquist-Luenberger indextransmission mechanismoptimal shareholding ratiobanking sustainability |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Wanping Yang Bingyu Zhao Jinkai Zhao Zhengda Li |
spellingShingle |
Wanping Yang Bingyu Zhao Jinkai Zhao Zhengda Li An Empirical Study on the Impact of Foreign Strategic Investment on Banking Sustainability in China Sustainability bank productivity foreign strategic investment EBM-Malmquist-Luenberger index transmission mechanism optimal shareholding ratio banking sustainability |
author_facet |
Wanping Yang Bingyu Zhao Jinkai Zhao Zhengda Li |
author_sort |
Wanping Yang |
title |
An Empirical Study on the Impact of Foreign Strategic Investment on Banking Sustainability in China |
title_short |
An Empirical Study on the Impact of Foreign Strategic Investment on Banking Sustainability in China |
title_full |
An Empirical Study on the Impact of Foreign Strategic Investment on Banking Sustainability in China |
title_fullStr |
An Empirical Study on the Impact of Foreign Strategic Investment on Banking Sustainability in China |
title_full_unstemmed |
An Empirical Study on the Impact of Foreign Strategic Investment on Banking Sustainability in China |
title_sort |
empirical study on the impact of foreign strategic investment on banking sustainability in china |
publisher |
MDPI AG |
series |
Sustainability |
issn |
2071-1050 |
publishDate |
2019-01-01 |
description |
In order to improve the banking sustainability in China, China’s government has announced that the restrictions on foreign shareholding ratio in domestic banks will be canceled. However, the effectiveness of foreign strategic investment needs checking. In addition, under the new policy, the method by which banks formulate appropriate internal decisions about introducing foreign strategic investment is an important issue for bank managers. Continuous productivity growth will bring sustainable development; therefore, the aims of this paper are: (1) to find the relationship between foreign strategic investment and productivity change of China’s banks, and to verify the effectiveness of introducing foreign strategic investment; (2) to find the optimal foreign shareholding ratio; (3) to show how foreign strategic investment affects the productivity of China’s banks, i.e. the transmission mechanism between them, and to provide bank managers with evidence and support for making decisions on introduction of foreign strategic investment. This paper employs the Malmquist-Luenberger index and combines it with Epsilon-based-measure to derive a new index, i.e. the EBM-Malmquist-Luenberger index, to measure the dynamic productivity change of China’s banks. In addition, the dynamic panel data and system GMM estimator are used to analyze the transmission mechanism as well as the impact of foreign strategic investment on the productivity of China’s banks. The results revealed three facts. First, when the foreign shareholding ratio increases within a given range, foreign strategic investment continuously improves the productivity and sustainability of China’s banks. Second, an inverse N-shaped relation between foreign strategic investment and productivity growth of China’s banks is supported, and the optimal foreign shareholding ratio is 20.16%. Last but not least, foreign strategic investment improves the productivity and sustainability of China’s banks, mainly through changing scale efficiency. The results of this paper may provide support for policy formulation of China’s banks. |
topic |
bank productivity foreign strategic investment EBM-Malmquist-Luenberger index transmission mechanism optimal shareholding ratio banking sustainability |
url |
http://www.mdpi.com/2071-1050/11/1/181 |
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