An analysis of the impacts of corporate governance on the financial performance of the Chinese banks

This study examines the cross-sectional relation between corporate governance and corporate performance of the sample of 12 Chinese banks over the 2003-2006 periods. Taking other influential factors into account, such as the capital adequacy ratio and the firm size, this study investigates the influence of state ownership and outside directors on bank performance, measured by return on equity and non-performing loans ratio. The two ratios are chosen to evaluate the financial performance of a bank in terms of its profitability and the soundness of its operating revenue management. The results suggest that there is a strong relationship between corporate governance and bank performance. More specifically, the fraction of shares owned by the state has significant and negative effects on bank performance and the proportion of outside directors on the board of directors has positive effects on bank performance.