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PRESENTATION TOPICInformation Disclosure, Market Discipline And The Management Of Bank Capital: Evidence From The Chinese Financial Sector
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Group-5
Amina Khalil
Arsal Burhan
Bilal Ahmad
Muhammad Usman Islam
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Agenda of Presentation Topic Introduction Objective of study Research question Methodology use, data source(s),
variables GAP Conclusion
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About the Authors Yuliang Wu PhD in Risk Management & Insurance Professor in Queen’s University
Management school, UK Michael Bowe Mike Bowe is Professor of International
Finance in Manchester Business School.
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Introduction Chinese Banking System Financial reforms of early 1990s Restructuring State owned Banks Encouraging banks to lists share
publically Liberalizing interest rate
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Keywords: Market discipline Capital Risk Management Chinese Banking
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Market Discipline Captured from four sets of factors1)Market concentration2)Interbank deposits3)Information Disclosure4)Ownership structure
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Direction of the paper Comparative analysis of
State own v.s Privately own institution
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Early History
Dominance of people banks of china
(PBOC)
Pre-reformed period 1949-1978
Acting central bank & only commercial
bank
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1978 reforms separation of PBOC
PBOC
Central Banking
Commercial
operations
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BIG-4 of China Commercial operations split four
specializes state owned banks(BIG4)1)Agriculture Bank of China(ABC)2)China Construction Bank(CCB)3)Bank of China(BOC)4)Industrial and commercial bank of
China(ICBC)
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Second reforms Second financial reform starting in late
1980s Small and medium sized joint-equity banks
were established by Government with license
It offer banking services to household and firms nationwide
These banks mixed ownership structure; State, State-owned enterprises , private enterprises, & private individuals
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Third Reforms Third financial reform periods in late
1990s just preceding 2001WTO meeting. China become member of world trade
organization(WTO) Allow foreign banks to operate in China
by 2006
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GAP identification No empirical study on the external forces
and Chinese banking reforms
No impact of WTO 2001 china membership on the domestic banking system
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Objective of study Empirically development of link between
market discipline and bank capital
Relationship between rated banks and capital ratio
Information disclosure and interbank market performance
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Research Questions Does financial information disclosure has
impact on the market discipline effect ? Does the rating of the banks has impact
on bank’s capital ? Does joint equity assets has more capital
ratio as compared to other banks ?
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Model
CAP
Assets Mark
et Contr
ol
GDP
ROA
NPL
MD
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Variables of the study CAP = Total Capital Ratio (Capital/RWA) Log Asset = Bank total asset's log MD = market discipline ROA = Probability ratio NPL = Bank prudential risk management
activity (NPL/Total assets) GDP = Gross domestic product Market Control = Herfindalh-Hirschman
index (HERF)
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Data 120 chinese Banking institutions 10 year of data (1998-2008) Source Bankscope-Fitch international Bank
Database Almanac of Chinese Finance and banking Annual Issue of China Statistical Year
Book
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Analysis 2 stage least square instrumental
variable estimation procedure• First stage information disclosure and
bank fundraising was tested in inter banks markets
• Joint equity banks capital ratio was tested against in respect of prudential risk management
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Conclusion Coefficient of information is 0.034
External forces has change the Chinese banking system.
Capital buffer in listed banks are significantly higher than bench mark.
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Conti…. The results shows that market discipline
operate through information disclosure
Joint equity banks maintain a higher equity ratio
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