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A Risk Analysis of Chinese Banking Industry Introducing Strategic Investors

ZHAN Shuo (Financial Department,Xiamen University,Xiamen 361005,China)  
The domestic banking industry has been trying to introduce strategic investors to decentralize the share ownership structure in order to improve bank's operating efficiency and corporate governance in the long run. Our research finds out that this kind of decentralized share structure is not stable. When the control rent is high enough to compensate the risk and costs related to share holding and transaction, incentives will be stimulated for strategic investors to go back to centralize share holding structure, which leads to the control right transfer and extra efficiency loss. Our domestic banking industry must face to this risk when introducing strategic investors and reduce the risks by lowering the control rend, which could be achieved by choosing the right objective functions of manager's revenue and enhancing micro-market fundamental construction.
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