Banking Stock-Market Responses to China's Financial Opening Measures: An Event Study

Abstract

This research paper empirically investigates the impact of recent financial opening measures on the expected profit efficiency of publicly listed banks with varying ownership structures in China. Utilizing an event study methodology and the Fama-French Three-Factor Model, the study analyzes a panel datasets of 58 publicly listed banks across both A and H share markets. The findings reveal an overall positive impact of the openness policy on the domestic banking sector in the A share market, reflecting market confidence in these regulatory changes. However, results in the H share market were found to be less significant. Additionally, the study identifies city commercial banks as exhibiting the largest positive response, followed by joint-stock and rural commercial banks. State-owned commercial banks also showed a positive reaction, but to a lesser extent. From a managerial perspective, the study suggests that stakeholders, including policymakers, domestic bank operators, foreign capital managers, and stock market investors, should consider the varying responses of different bank types when formulating strategies to navigate the changing regulatory landscape. The review of the literature and study results indicate that further research is needed to broaden the datasets and models used, particularly to explore the long-term effects and the influence of international investor sentiment on these financial opening measures.