The Relationship Between International Diversification and Business Performance of Chinese Commercial Banks

Chinese banking industry speeds up the process of internationalization as the global economy integrates and Chinese government accelerates the going out strategy. Many Chinese commercial banks explore overseas market by setting up new branches or merge and acquisition. Under the background, this paper uses empirical study to analyze the relationship between the degree of banks’ internationalization and business performance. Firstly, principal component analysis is applied to measure the degree of banks’ internationalization. Then, the paper constructs two models to analyze the panel data of five state-owned commercial banks, the second one with financial crisis as dummy variable. The results indicate that there is a U-shape relationship between the degree of banks’ internationalization and business performance in the first model without dummy variable. In the second model adding dummy variable, the financial crisis not only deteriorates Chinese commercial banks’ performance, but also makes the relationship between degree of internationalization and business performance become negative in 2008 while the degree of internationalization has positive influence on operational performance in years except for 2008.