Impact of Foreign Strategic Investors on the Efficiency of Chinese Banks

Abstract

This paper investigates how foreign strategic investors influence domestic bank efficiency in China. The indicators of commercial bank efficiency are estimated by applying a non-parametric estimation technique, data envelopment analysis (DEA). This paper analyzes how foreign strategic investors affect bank efficiency, and uses panel data model to test whether the introduction of foreign strategic investors can improve the efficiency of Chinese banks and whether its impact on state-owned banks is different from that on other banks. The result shows that the introduction of foreign strategic investors has a positive effect on bank efficiency and the increase in foreign ownership can help domestic banks improve their efficiency. However, the positive effect of increasing foreign ownership on state-owned banks is less than the effect it has on other commercial banks.