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The Research on Equity Pricing of Our Banks When Introducing Overseas Investment

Author: YaoJing
Tutor: HeGuoSheng
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: Overseas financial institutions Chinese commercial banks The transfer of equity Equity pricing
CLC: F832.33
Type: Master's thesis
Year: 2009
Downloads: 102
Quote: 1
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Abstract

The stream of finance globalization is sweeping the whole world. After china joined in WTO, the foreign trade is more and more. In Dec 2003, CBRC(China Banking Regulatory Commission)issued‘Administrative Rules Governing the Equity Investment in Chinese Financial Institutions by Overseas Financial Institutions’, Which stipulates the equity investment proportion of a single overseas financial institution in a Chinese financial institution shall not exceed 20%, and sets forth the basic law principles for overseas strategic investment institutions. The Chinese government is opening up local business to foreign banks. As one of the conditions for China joining the WTO five years ago, the country is allowing foreign banks to incorporate in China and to handle retail business using Chinese currency. With the gradually opening of the Chinese Banking industry, many international famous financial Institutions engage in equity investment in Chinese Banks.Introducing overseas strategic investors is beneficial to solve the problem of the lack of capital, improve the structure of corporation administration, introduce the advanced technique and management experience, strengthen the confidence of the public and the international investors, and achieve the success of IPO. Although introducing overseas strategic investors has so many advantages, but it also brings out some problems, which mainly focus on the threats to finance security and the underestimate of state-owned assets. Among these problems, the matter that whether or not the equity pricing of Chinese commercial banks is reasonable is the key point of arguments. The equity price is the key factor in the negotiation of introducing foreign capital. It decides the success of the negotiation, and it also relates to the benefits of the shareholder. Obviously, the undervaluation of equity price will cause loss to Chinese commercial banks. On the other hand, the overvaluation of equity price will affect the investing motivation of overseas investors. No doubt, to further attract foreign strategic investors, or to speed up the opening of Chinese banking industry, the study of equity pricing of Chinese commercial banks properly is of great significance.At present, many Chinese scholars have done a lot of studies and analysis regarding equity pricing of Chinese commercial banks, however, most of these works are focus on the qualitative analysis of the undervaluation or overvaluation of equity, lacking of the quantitative analysis for the equity pricing. Therefore, by using domestic and foreign matured business valuation methods, this thesis conducted thorough analysis according to the actual situation of Chinese commercial banks, and tried to find the proper theories and methods for Chinese commercial banks valuation. And then, by evaluating the equity price, this thesis put forward some suggestions to perfect the pricing mechanism for the overseas financial institution investment in Chinese commercial banks, and improve the introducing efficiency of overseas strategic investment.This thesis has 5 chapters totally.Chapter 1 is the introduction, and it set forth the object, significance of the research, domestic and foreign achievements in the topic, the study methods and frame, the innovation and deficiency.Chapter 2 described the present situation of Chinese commercial banks, and it mainly emphasized the overall profile, the features, and the benefits of the both sides of overseas financial institutions and Chinese financial institutions.Chapter 3 analyzed the current problem of equity pricing, and it expatiated on the affirmative and the negative standpoints on the evaluation of state-owned assets’value, then it expounded the reasonable and unreasonable factors of the method—Market Price to Book Value Ratio.Chapter 4 is the keystone of this thesis. It analyzed a variety of business valuation methods and models, including cost method, gains method, market method, and some other methods, such as options pricing method, three-factor pricing method, and tried to search out the most appropriate method, which could be applied in equity pricing. And then, this thesis applied quantitative analysis based on qualitative analysis, and applied three-factor pricing method to the equity pricing of China Construction Bank when introducing Bank of America Corp. At the end of this part, it innovatively proposed to introduce full-bidding mechanism into the process of equity pricing to make equity price more reasonable.Chapter 5 proposed some concrete suggestions to perfect the pricing mechanism, including the suggestions for the department of banking custody and the suggestions for Chinese commercial banks. It also analyzed the influencing factors of equity pricing.The innovation of this thesis is that it put forward a more reasonable pricing mode based on the former research achievements. The suggestions at the end of this thesis are also the innovations, they avails standardization of the pricing mechanism, and make both sides get benefits. Certainly, because of my limited knowledge and incomprehensive consideration, there are some deficiencies in the thesis, for example, the depth of analysis is not enough and the collection of material is not sufficient. In a word, I hope that the deficiencies in the thesis will be amended in the future research.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial organizations, banks > Commercial banks ( specialized banks )
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