Divestment of foreign strategic investment in China's banking sector: Causes and consequences

Yuhua Li, Konari Uchida

Research output: Chapter in Book/Report/Conference proceedingChapter

1 Citation (Scopus)

Abstract

Purpose - Investigate the causes and consequences of foreign financial institutions' divestments in China's banking sector which is an example of cross-border transactions by institutional investors. Methodology - Use a sample of 26 foreign financial institutions' strategic investments in Chinese banks. Ten of those investments are divested after the global financial crisis. We investigate determinants of the divestment, business cooperation after the divestment, and Chinese banks' stock price reactions to the divestment announcement. Findings - The poor performance of foreign financial institutions, which is attributable to the global financial crisis, and the institutions' regulated low equity ownership are important causes of divestment (or whole divestment). In contrast, Chinese banks' poor performance does not cause foreign divestments. Foreign financial institutions that fully divest their equity stakes usually terminate their cooperative business, which was required by the strategic investment agreement. The Bank of China and the China Construction Bank, which experienced large H-share divestments, experienced large economic declines in A-share values. Social implications - Foreign financial institutions' strategic investments created substantial shareholder value before the divestment. Banking sector developments that rely on foreign investments are vulnerable to economic downturns in developed countries. Originality/value of paper - To the best of our knowledge, this is the first trial to analyze the impact of divestments on divested bank performance.

Original languageEnglish
Title of host publicationInstitutional Investors in Global Capital Markets
EditorsNarjess Boubakri, Jean Cosset
Pages83-110
Number of pages28
DOIs
Publication statusPublished - Dec 1 2011

Publication series

NameInternational Finance Review
Volume12
ISSN (Print)1569-3767

Fingerprint

China
Divestment
Banking sector
Strategic investment
Financial institutions
Global financial crisis
Foreign investment
Developed countries
Stock price reaction
Equity
Economics
Cross-border
Methodology
Shareholder value
Institutional investors
Bank performance
Announcement
Equity ownership
Economic downturn

All Science Journal Classification (ASJC) codes

  • Finance

Cite this

Li, Y., & Uchida, K. (2011). Divestment of foreign strategic investment in China's banking sector: Causes and consequences. In N. Boubakri, & J. Cosset (Eds.), Institutional Investors in Global Capital Markets (pp. 83-110). [1958398] (International Finance Review; Vol. 12). https://doi.org/10.1108/S1569-3767(2011)0000012006

Divestment of foreign strategic investment in China's banking sector : Causes and consequences. / Li, Yuhua; Uchida, Konari.

Institutional Investors in Global Capital Markets. ed. / Narjess Boubakri; Jean Cosset. 2011. p. 83-110 1958398 (International Finance Review; Vol. 12).

Research output: Chapter in Book/Report/Conference proceedingChapter

Li, Y & Uchida, K 2011, Divestment of foreign strategic investment in China's banking sector: Causes and consequences. in N Boubakri & J Cosset (eds), Institutional Investors in Global Capital Markets., 1958398, International Finance Review, vol. 12, pp. 83-110. https://doi.org/10.1108/S1569-3767(2011)0000012006
Li Y, Uchida K. Divestment of foreign strategic investment in China's banking sector: Causes and consequences. In Boubakri N, Cosset J, editors, Institutional Investors in Global Capital Markets. 2011. p. 83-110. 1958398. (International Finance Review). https://doi.org/10.1108/S1569-3767(2011)0000012006
Li, Yuhua ; Uchida, Konari. / Divestment of foreign strategic investment in China's banking sector : Causes and consequences. Institutional Investors in Global Capital Markets. editor / Narjess Boubakri ; Jean Cosset. 2011. pp. 83-110 (International Finance Review).
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