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Regulatory reforms and convergence of the banking sector: evidence from China

James C. Brau (Marriott School, Brigham Young University, Provo, Utah, USA)
Drew Dahl (Jon M. Huntsman School of Business, Utah State University, Logan, Utah, USA)
Hongjing Zhang (Northeast Dianli University, Jilin City, P.R. China)
Mingming Zhou (College of Business, University of Colorado at Colorado Springs, Colorado Springs, Colorado, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 7 October 2014

938

Abstract

Purpose

The purpose of this paper is to examine the effect of regulatory reform on the asset allocation and capitalization of Chinese banks from 2002 to 2007, a period following China's entry into the World Trade Organization (WTO).

Design/methodology/approach

The evidence rejects a hypothesis that the four categories of banks operating in China – the Big Four, Majority State, Majority Private, and Majority Foreign banks have converged toward common targets. Supplemental analysis indicates that domestic banks, but not foreign banks, adjust equally to their targets.

Findings

The paper concludes that, although Chinese banking remained segmented during this unique transitional period, a more uniform pattern has emerged for those Chinese banks that are domestically owned.

Originality/value

The authors employ a methodology that is explicitly designed to determine if banks have converged toward common approaches to asset allocation and capitalization, which has not been studies previously.

Keywords

Acknowledgements

JEL Classifications — G21, G28

The authors thank Ana Lozano-Vivas and seminar participants at the 11th Annual Bank of Finland/CEPR conference for their helpful comments.

Citation

C. Brau, J., Dahl, D., Zhang, H. and Zhou, M. (2014), "Regulatory reforms and convergence of the banking sector: evidence from China", Managerial Finance, Vol. 40 No. 10, pp. 956-968. https://doi.org/10.1108/MF-07-2013-0178

Publisher

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Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited

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