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Please use this identifier to cite or link to this item: http://hdl.handle.net/2440/73776

Type: Journal article
Title: Bad debt provisions of financial institutions: dilemma of China's corporate governance regime
Author: Shan, Y.
Xu, L.
Citation: International Journal of Managerial Finance, 2012; 8(4):344-364
Publisher: Emerald Group Publishing Ltd
Issue Date: 2012
ISSN: 1743-9132
Statement of
Responsibility: 
Yuan George Shan and Lei Xu
Abstract: PURPOSE: The purpose of this paper is to investigate whether the level of bad debt provisions of financial institutions is affected by internal governance mechanisms (IGMs) from the perspective of the Type II principal-principal (PP) conflicts between the controlling shareholders and the minority shareholders. DESIGN/METHODOLOGY/APPROACH: The authors’ sample covers all listed financial institutions in China, comprising a panel data set of 139 firm-year observations covering 1999 to 2009.Within China’s two-tier corporate governance context, the three IGMs – ownership structure, board of directors and supervisory board – are measured to examine the level of bad debt provisions. FINDINGS: The findings suggest that state ownership and legal person ownership are negatively related to the level of bad debt provisions, but board size reveals a positive association. Other factors including foreign ownership, independent directors, board meeting, supervisory board size and supervisory board meeting were found to have no impact. PRACTICAL IMPLICATIONS: The spirit of corporate governance reform has not been transferred to financial institutions sufficiently. The board of directors and supervisory board actually act the roles of “window dressing” or “rubber stamp” within the current two-tier system. From the Type II PP perspective, the controlling shareholders are found to moderate the conflicts between other parties but they still expropriate the interests of minority shareholders and are the real beneficiaries of recent reforms. Thus, further financial reforms seem necessary in China. ORIGINALITY/VALUE: The paper provides an empirical analysis of factors that underlie IGMs during an important period of regulatory change and organizational reform, and fills a literature gap concerning the effectiveness and efficiency of financial institutions.
Keywords: China; corporate governance; financial institutions; debts; bad debt provisions
Rights: © Emerald Group Publishing Limited
RMID: 0020122178
DOI: 10.1108/17439131211261260
Appears in Collections:Business School publications
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