The effects of foreign strategic investors on business models in China’s commercial banks: does ownership structure matter?

Abstract

Introducing foreign strategic investors (FSIs) is a vital step in the ownership reforms of China’s banking industry. Using China’s data from 1995 to 2014, we employ propensity score matching and difference-in-differences approaches to investigate the effects of FSIs on the business models of Chinese banks, including income structure and funding structure. We find that FSIs significantly influence income structure. The bank’s non-interest income (NII) share significantly rises after introducing FSIs. The higher ownership shares of FSIs are associated with the higher NII share. And the NII share has been increased when FSIs assign directors or senior managers to Chinese banks. We also report that the effects of FSIs on income structure are weaker in state-owned banks than those in other banks, and ownership concentration weakens the links between FSIs and income structure. Finally, this article shows that FSIs have no significant influence on funding structure. These findings will be informative and relevant to both policymakers and practitioners.