Analysing The Market Structure Of Commercial Banks Finance Essay

Based on the informations of four state-owned commercial Bankss and 11 national joint-equity commercial Bankss in 2002-2009 periods, the market construction of those Bankss and ownership are analyzed and statistically described. In add-on, the basic characteristics are presented and do hypotheses of relationship between bank public presentation and ownership and market construction. Then, by utilizing index, set up arrested development theoretical account and choice sample informations in order to prove hypotheses via arrested development analysis.

3.1.1 Regression theoretical account

The intent of this research is to prove the consequence of ownership and market construction on bank public presentation. For this ground, ownership construction and market construction are two chief explanatory variables in arrested development theoretical account. The arrested development theoretical account is established based on the theoretical account by Berger et Al. ( 2005 ) and Smirlock ( 1985 ) , the arrested development for the research is as follows.

Bank Performance = ? + i??-Ownership Structure Indicators + i?§-Market Structure Indicators + i?± -Control Variables ( GDP ) + Error Term

Variables choice

Dependent variable

The dependant variable is bank public presentation. In order to analyze the public presentation state of affairs for a bank, two facets including profitableness and efficiency should be considered. Harmonizing to Casu et Al. ( 2006 ) , profitableness can be estimated by indexs of Return on Assets ( ROA ) , Return on Equity ( ROE ) , Cost to Income ( COI ) and Net involvement Margin ( NIM ) . See the information aggregation and computation, in this paper, ROAA ( return on mean assets ) which step bank profitableness and COI which step efficiency of bank operation are used in arrested development. ROA is estimated as net income / entire assets. COI is calculated as non-interest disbursals / ( net involvement income + non-interest income ) .

Ownership construction index:

Goldberg and Rai ( 1996 ) use CR3 ( three Bankss concentration ratio ) to analyze concentration. Yang and Cao ( 2007 ) has used CR5 to analyze concentration of ownership. The concentration grade CR 5, viz. , amount of top 5 big stockholders ‘ shareholding ratio, step ownership concentration of chief bank stockholders and represent ownership and the control grade by big stockholders for bank.

Market construction of bank index:

Market portion as an of import index is used to mensurate market construction. In this paper, Average Market Share ( AMS ) which examine norm market portion of sedimentation, loans and assets is selected. The Calculation of AMS is as follows.

AMS = ( Market portion of deposit+ Market portion of Loan + Market portion of Asset ) /3

Market portion of sedimentation = Total Deposit of one bank/Total sedimentation of Chinese Bankss

Market portion of loan = Total loan of one bank / Total loan of Chinese Bankss

Market portion of plus = Total plus of one bank / Total plus of Chinese Bankss

Control variables:

When select control variables, GDP growing and Asset Ln as two indexs are considered. Asset Ln is capital graduated table, which means natural logarithm of entire year-end plus of corporate. GDP growing will act upon bank public presentation more significantly than Asset Ln. Therefore, it is a control variable when make arrested development for the informations of joint-equity commercial Bankss, but non Asset Ln. In contrast, Asset Ln will act upon state-owned commercial Bankss more significantly than GDP growing. Thereby, Asset Ln is selected as a control variable but non GDP when make arrested development for the informations of state-owned commercial Bankss.

3.1.3 Sample and informations choice

There are 13 national joint-equity commercial Bankss ; nevertheless, Zhejiang Commercial Bank and Bohai Bank do non follow joint stock system every bit early as other 11 national joint-equity commercial Bankss. In add-on, the other 11 joint-equity Bankss are runing for a long clip and hold typical. City Bankss are non chosen due to urban distinction. Thereby, Four Chinese state-owned commercial Bankss ( Industrial and Commercial Bank of China, Construction Bank of China, Bank of China and Agricultural Bank of China ) and 11 joint-equity commercial Bankss ( Bank of Communications, Industrial Bank, Huaxia Bank, China Merchants Bank, Guangdong Development Bank, Shenzhen Development Bank, Shanghai Pudong Development Bank, China Minsheng Bank, Citic Industrial Bank, China Everbright Bank, and Evergrowing Bank ) as sample are selected. These Bankss are non influenced by local characteristic diverseness and Empirical Consequences have generalization. The grounds for taking period of 2002-2009 are that first of all, since China entered WTO in 2001, the competition has been increased via foreign Bankss come ining, which changed the ownership of Chinese Bankss and banking system significantly. Second, the 15 commercial Bankss have sufficient informations in 2002-2009 period compared to other Bankss. The information of 2010 should be selected but it is hard to roll up and the information is non sufficient. The information beginnings come from Data beginning semen from Bankscope, China Banking Regulatory Commission Annual Report and Almanac of Chinas Finance and Banking.

3.2 Data analysis

3.2.1 Ownership construction analysis

Ownership construction is the stock proportion of stockholders and stockholders character. Different ownership constructions may take to diverse benefit and power distribution. Chinese joint-equity commercial Bankss and four state-owned commercial Bankss ‘ portion ratio of big stockholders is changed dramatically during recent decennary. Their belongingss of big stockholders are rather different. The portion of four state-owned Bankss is chiefly controlled by authorities by the per centum of 70 % , but state-owned portions ratio of joint-equity commercial Bankss is less. The analysis for alterations state of affairs of China joint-equity commercial Bankss and state-owned Bankss ‘ ownership in recent old ages is as follows.

Ownership concentration

Concentration of ownership can mensurate ownership construction, for illustration, portion proportion of the first stockholder, portion proportion of top five stockholders, and portion proportion of top 10 stockholders, which can analyze scattering and centralisation grade. Their consequence on public presentation is realized through power balance. Different ownership concentration will take to diverse public presentation. In this paper, portion ratio of top five stockholders CR5 as index is selected. The undermentioned diagrams chart 1 and chart 2 show agencies of top five stockholders ‘ portion proportion from 11 Chinese joint-equity and 4 state-owned commercial Bankss from 2002 to 2009.

Chart 1: 2002-2009 joint-equity commercial Bankss ‘ CR5 means curve graph

Note: Data beginning comes from one-year study by 11 joint-equity commercial Bankss.

Meanss are calculated by the informations.

Based on chart 1, we can see clearly that there is a lifting tendency for top joint-equity commercial Bankss ‘ portion ratio of top five stockholders in recent old ages. In 2002, the mean of CR5 was 46.12 per centum, and the per centum was about changeless in 2003-2004 periods. From 2005, the portion proportion of stockholders had grown at 48.55 % until the terminal of 2007, the ratio of portion by stockholders had reached more than 57 % . During the period of 2007-2009, portion per centums of top five stockholders were changed little even stayed unchanged. Harmonizing to this tendency, the grade of ownership concentration is increasing continuously.

Chart 2: 2002-2009 state-owned commercial Bankss ‘ CR5 means curve graph

Note: Data beginning comes from one-year study by 4 state-owned commercial Bankss.

Meanss are calculated by the informations.

Chart 2 shows that the grade of ownership concentration for four state-owned commercial Bankss is falling during 2002-2009 periods. Between 2002 and 2004, the portion proportions of top five stockholders were hundred per centum, that is to state, in these three old ages, the portion of four state-owned Bankss was wholly controlled by authorities. From 2004 to 2006, the ratio of stockholder ‘ portion was diminution somewhat at 93.20 % , but after 2006, the ratio rise a spot and reached at more than 96 per centum below 100 per centum. Though the figure had increased, the proportion of state-owned Bankss is still highly higher than that of joint-equity Bankss.

From chart 1 and chart 2, it is clear that the ownership centralisation of China four state-owned Bankss is rather high, and top five stockholders ‘ portion proportion is more than 90 % . In contrast, ownership concentration of joint-equity commercial Bankss is lower and top five stockholders ‘ portion ratio is 50 % in norm.

Shareholder ‘s belongings

The portion proportion of stockholder is one of of import parts of ownership construction, besides ; stockholder ‘s belongings is another critical portion for ownership construction. Different portions of stockholder ‘s character will bring forth diverse ways of entrustment of agent, and make different effects on bank public presentation. In Chinese banking industry, there are three chief characters of stockholder, viz. state-owned portions, institutional portions, go arounding portions. Yang and Cao ( 2007 ) has mentioned different sorts of portions.

Harmonizing to Yang and Cao ( 2007 ) , State-owned portions as public capital is controlled by authorities and is administrated by Asset Management Company or state-owned endeavors via authorising. This companies or endeavors will intrust direct operator with national plus ‘s power of operation. Such nexus concatenation of entrustment and agent is difficult to act upon direct operator. Thereby, by and large, the consequence of state-owned portions on bank public presentation is indirect or less important. Institutional portion is the portion that can non be circulated in secondary market of Chinese securities market. This sort of portion is dearly-won. For this ground, the dividend of company is a major manner to obtain income from investing, which determine institutional portion of stockholders focus on long-run return on investing. In order to derive income from investing, they have more motive to oversee big stockholders and operator ; in add-on, they participate in corporate operating direction. Institutional portions of stockholders themselves are the endeavors or investing companies that have the intent of prosecuting net income. They take portion in corporate administration and oversing operator of endeavor. The relationship between institutional portions of stockholders and principle-agent is direct and effectual ; hence, by and large talking, institutional portions have positive impact on bank public presentation.

The difference of ownership construction for Chinese state-owned commercial Bankss and joint-equity commercial Bankss is non merely reflected on ownership concentration, but besides stockholder ‘ character. Ownership centralization grade of former Bankss is rather high and the grade of ulterior Bankss is less. Thereby, in this paper, arrested development and comparative analysis are two chief methods to analyse the consequence of different ownership construction on bank public presentation.

3.2.2 Market construction analysis

Changes of market portion for Chinese banking

The construction of market for China banking industry has changed dramatically in recent several decennaries. Harmonizing to the statistic of 2009 by China Banking Regulatory Commission, until by the terminal of 2009, there are four state-owned commercial Bankss, 13 joint-equity commercial Bankss, 143 metropolis Bankss, 43 rural commercial Bankss and 196 rural concerted Bankss. From the facet of market portions, there are three types of Chinese Bankss with big capital size, which are state-owned commercial Bankss, joint-equity commercial Bankss and small-medium size of rural fiscal establishments. These Bankss occupy 46.7, 19.2 and 11.0 per centum of Chinese banking plus in the whole state. Based on the ratio, we can see that state-owned and joint-equity commercial Bankss occupy two tierces in Chinese banking plus. Joint-equity commercial Bankss take up about one fifths market portion in banking plus, and the capital portion of 2009 has increased by 0.84 % when comparison with that of last twelvemonth. The plus of joint-equity commercial Bankss is turning faster than that of other types of Chinese Bankss. Eleven joint-equity commercial Bankss which are mentioned before are chosen as sample because these Bankss are authoritative representatives among Chinese joint-equity commercial Bankss. They are more effectual than four state-owned Bankss based on banking system history. In add-on, joint-equity commercial Bankss develop quickly, the public presentation of these Bankss promotes continuously, and the market portion is enlarging measure by measure. After development for several decennaries, Bank of Communications China, Minsheng Bank, China Everbright Bank and Citic Industrial Bank have been listed in international 1000 large Bankss. For these ground, they are selected as aim to assist the research.

Market portion

By and large talking, the factors for market construction organize include market portion and graduated table of provider, concentration of market portion and the distinction of merchandises. Among these factors, market portion is a primary footing to organize market construction. The analysis of market portion for eleven joint-equity commercial Bankss and four state-owned commercial Bankss through descriptive statistics method is as follows. Market portion of one bank is measured by indexs of market portion of sedimentation, market portion of loan and market portion of plus, which are mentioned above. The undermentioned diagrams display the agencies of two types of Bankss ‘ market portion.

Chart 3: 2002-2009 Market portion of sedimentation, loans, and assets for joint-equity commercial Bankss

Chart 4: 2002-2009 Market portion of sedimentation, loans, and assets for state-owned commercial Bankss

Note: Datas beginnings come from one-year study, Almanac of Chinas Finance and Banking, China

Banking Regulatory Commission Annual Report, and Bankscope.

Meanss are calculated by the informations.

As can be seen from chart 3, agencies of joint-equity commercial Bankss ‘ sedimentation, loans and assets portion is go uping twelvemonth by twelvemonth. That is to state, the market portion of joint-equity commercial Bankss is increasing annually and their market competition strength is heightening bit by bit. For the mean of portion sedimentation, market portion of sedimentation increased from 2002 to 2004 and reached at 1.49 % . There is a small descent between 2004 and 2005. However, the sedimentation portion means per centum went up from 2005 to 2009 making at 1.66 % . For the agencies of portion loans and assets, the tendency is lifting all the clip and market portion of loans are higher than market portion of assets. In contrast, chart 4 shows the diminishing tendency of portion sedimentation means, portion loans means and portion assets means for state-owned Bankss, because the amount of market portion for each bank equal 1, when the market portions of joint-equity commercial Bankss increase twelvemonth after twelvemonth, the market portion of some other types of Bankss, such as national Bankss, must fall annually. As is shown in chart 4, market portion of four state-owned commercial Bankss which take up about a half of Chinese banking market portion is worsening twelvemonth by twelvemonth. From 2002 to 2009, means of portion sedimentation and loans of state-owned Bankss went down, making at 13.03 % and 11.50 % severally. The agency of assets portion was besides falling during this clip in malice of a little acclivity between 2004 and 2005. It is deserving to detect that assets portion agencies were lower than loans portion means of state-owned commercial Bankss from 2002 to 2004 ; however, their mean of loan portion appeared the same as the mean of assets portion. After 2004, means of assets portion became higher than that of loans portion.

Compare chart 3 and chart 4, Chinese four state-owned commercial Bankss have perfectly high quality on market portion at nowadays. For case, even though the market portion of sedimentation was the lowest in 2009, making at 13.03 % , the amount of sedimentation portion of four Bankss is more than 50 % .

3.2.3 Hypothesiss

Harmonizing to the above analysis of four state-owned commercial Bankss and eleven joint-equity commercial Bankss, four hypotheses are as follows.

H1: There is positive correlativity between ownership concentration and public presentation of Chinese joint-equity commercial Bankss.

H2: There is negative correlativity between ownership concentration and public presentation of Chinese state-owned commercial Bankss.

H3: There is positive correlativity between market portion and public presentation of Chinese joint-equity commercial Bankss.

H4: There is negative correlativity between market portion and public presentation of Chinese state-owned commercial Bankss.

The undermentioned consequences are calculated based on arrested development theoretical account and the information of 15 commercial Bankss from 2002 to 2009 in order to prove hypotheses.

3.2.4 Arrested development consequences

First and first, based on the characteristic of ownership construction, the sample informations is divided into two groups. One group is 88 information of 11 joint-equity commercial Bankss from 2002 to 2009. The 2nd group is 33 informations of four state-owned commercial Bankss from 2002 to 2009.

When purpose at explanatory variable of Return on Average Assets ( ROAA ) , the arrested development for above two groups is made severally. The undermentioned tabular arraies are stand foring ROAA arrested development consequences.

Table 1: ROAA arrested development consequence of joint-equity commercial Bankss

R2 =0.84 Confidence degree = 95 %

Intercept and Variable

Coefficients

T Stat

P-value

i??

0.08

0.24

0.81

CR5

0.01

2.10

0.04

Americium

0.17

5.48

0.01

GDP_Growth

0.01

0.36

0.72

Table 2: ROAA arrested development consequence of state-owned commercial Bankss

R2 =0.73 Confidence degree = 95 %

Intercept and Variable

Coefficients

T Stat

P-value

i??

-3.23

-1.03

0.31

CR5

-0.03

-2.49

0.02

Americium

-0.03

-1.49

0.15

Assets_Ln

0.50

3.31

0.00

Table 1 show that 84 % of return on mean assets ( ROAA ) of joint-equity commercial Bankss is explained by amount of portion ratio of top five big stockholders ( CR5 ) and mean market portion ( AMS ) . The coefficient of CR5 is 0.01 and coefficient of AMS is 0.17. Both coefficients are positive in the arrested development. That is to state, there is positive relationship between ownership concentration and return on mean assets of joint-equity commercial Bankss. Furthermore, the correlativity between mean market portion and return on mean assets of joint-equity commercial Bankss is besides positive. P-values of these two coefficients with 0.04 and 0.01 severally are less than 0.05 with 95 % important degree. Therefore, the positive relativity of two variables is important. GDP growing with coefficient of 0.01 is positively related to ROAA of state-owned Bankss ; nevertheless, P-value of GDP with 0.72 is greater than 0.05, which demonstrate that this positive relation is non important. All groundss indicate that higher centralisation of ownership and larger market portion will be benefit to joint-equity commercial Bankss ‘ profitableness. The consequence is changeless with H1 and H3, which are mentioned before. GDP growing as a control variable is selected but plus ln is non because GDP growing can do the fittingness viz. R2 be higher than plus ln for joint-equity commercial Bankss whereas control variable of plus ln can do the fittingness be more higher than GDP growing for state-owned Bankss. Thereby, plus is chosen as control variable when make arrested development for the informations of state-owned Bankss. It is same manner to make the later arrested development for COI of two types of Bankss.

Table 2 shows that 75 % of return on mean assets ( ROAA ) of state-owned commercial Bankss is explained by amount of portion ratio of top five big stockholders ( CR5 ) and mean market portion ( AMS ) . Both coefficients of CR5 and AMS are negative 0.03. That is to state, there is reverse correlativity between ownership concentration and return on mean assets of state-owned commercial Bankss. Harmonizing to P-value of CR5 with 0.02 which is less than 0.05, the negative relativity is important with 95 % of significance degree. Furthermore, the correlativity between mean market portion and return on mean assets of state-owned commercial Bankss is besides negative. All the groundss indicate that higher centralisation of ownership and larger market portion will cut down profitableness of province owned commercial Bankss ‘ . The consequence is changeless with H2 and H4. It is deserving to detect that the correlativity between plus graduated table ( Asset Ln ) and return on mean assets of state-owned Bankss is positive and important, which illustrates that enlarge capital graduated table may assist state-owned Bankss promote their public presentation.

When focal point on explanatory variable of Cost to Income ratio ( COI ) , the arrested development for two informations groups is made severally. The undermentioned tabular arraies are stand foring COI arrested development consequences.

Table 3: COI arrested development consequence of joint-equity commercial Bankss

R2 =0.83 Confidence degree = 95 %

Intercept and Variable

Coefficients

T Stat

P-value

i??

69.23

5.90

0.00

CR5

-0.08

-1.66

0.10

Americium

-2.43

-2.15

0.03

GDP_grow

-1.69

-1.45

0.15

Table 4: COI arrested development consequence of state-owned commercial Bankss

R2 =0.74 Confidence degree = 95 %

Intercept and Variable

Coefficients

T Stat

P-value

i??

205.36

2.34

0.03

CR5

0.77

1.98

0.05

Americium

-0.20

-0.36

0.72

Assets_Ln

-15.06

-3.58

0.00

As is shown in chart 3, 83 % of cost to income ratio ( COI ) of joint-equity commercial Bankss is explained by amount of portion ratio of top five big stockholders ( CR5 ) and mean market portion ( AMS ) . The coefficient of CR5 is negative 0.08 and coefficient of AMS is negative 2.43. Both coefficients are negative. The arrested development consequences indicate that concentration of ownership is adversely related to COI of joint-equity commercial Bankss. In add-on, the association between mean market portion and cost to income ratio of joint-equity commercial Bankss is besides negative. Based on P-value which is less than 0.05 with 95 % of important degree, this opposite correlativity is important. GDP growing has negative consequence on COI, but non important. The groundss reveal that higher centralisation of ownership and larger market portion will take to lower proportion of cost to income, viz. the efficiency of operation for Bankss will be higher. The consequence is in agreement with H1 and H3.

From chart 4, it is clear that 74 % of cost to income ratio ( COI ) of state-owned commercial Bankss is explained by amount of portion ratio of top five big stockholders ( CR5 ) and mean market portion ( AMS ) . The coefficient of CR5 is 0.77 while coefficient of AMS is negative 0.20. The arrested development consequence shows that ownership concentration positively associated with cost to income ratio of state-owned commercial Bankss. P-value of CR5 with indicates that the reverse relation is important with 95 % of significance degree. The coefficient of AMS demonstrates that the correlativity between mean market portion and cost to income ratio of state-owned commercial Bankss is negative. However, this inauspicious association is non important because P-value of AMS with 0.72 is greater than 0.05. Negative relation between plus graduated table and COI of state-owned Bankss is important. The groundss indicate that higher centralisation of ownership will increase cost to income ratio of province owned commercial Bankss ‘ , viz. the efficiency of operation is lower. The consequence is changeless with H2. Nevertheless, enlarge plus graduated table and market portion will cut down COI of state-owned commercial Bankss, and do the operation more efficiency, which is non in accordant with H4.