Summary:
The governance risks associated with Village Banks pose significant challenges to the stable operation of China's financial markets. As key financial institutions serving agricultural, rural, and farmer-related sectors in county-level regions, Village Banks have played an active role in strengthening rural financial systems and promoting rural economic development. However, in recent years, some Village Banks have deteriorated into high-risk institutions with extreme financial risk events—such as the withdrawal crises at Village Banks in Henan Province—not only severely harmed depositors' interests and hindered the sustainable development of these banks, but also raised concerns over potential systemic financial risks. Therefore, uncovering the root causes of governance failures and resolving the governance dilemmas specific to Village Banks are crucial steps in enhancing the financial system's capacity to support rural development and ensuring long-term financial stability. This paper focuses on the naturally formed pyramidal ownership structures within Village Banks and selects the public listing of their controlling Sponsoring Banks as an exogenous shock to study the effect of transparency on governance outcomes. Using a sample of Village Banks from 2013 to 2023, we adopt a multi-period difference-in-differences (DID) approach to empirically examine the impact of increased information transparency on the governance and performance of Village Banks. The results show that the listing of Sponsoring Banks significantly increases both the probability and quality of information disclosure by Village Banks. Enhanced transparency improves internal governance structures—the vibrancy of the board of directors and the degree of managerial discipline both improved, while the proportion of pledged equity declines. At the same time, external oversight mechanisms are reinforced, as evidenced by a significant rise in regulatory penalties and media coverage. Consequently, the overall performance of Village Banks improves, with return on assets (ROA) rises by 0.58 percentage points while the non-performing loan ratio (NPL) drops by 2.26 percentage points. Furthermore, this study documents that certain opaque governance arrangements—such as overly complex pyramid structures, the delegation of board chairpersons by provincial rural credit cooperatives, and the misalignment of regulatory responsibilities of Sponsoring Banks—undermine the positive effect of Sponsoring Bank listings on transparency. These findings suggest that such distortions weaken the transmission of good governance practices and performance improvements. The evidence thus highlights that enhancing transparency is key to resolving governance bottlenecks in Village Banks. Moreover, it demonstrates the existence of corporate governance transmission effects within pyramidal ownership chains: positive governance mechanisms introduced through listing—such as improved transparency and stronger accountability—can be transmitted downstream to Village Banks; conversely, flaws in upper-tier governance can also cascade through the ownership hierarchy, potentially reaching its lowest tier. Based on these findings, the paper offers the following policy implications. First, in line with the regulatory agenda of the National Administration of Financial Regulation, standards for Village Bank information disclosure should be further refined to ensure accuracy, timeliness, and completeness. Second, the qualification and screening criteria for Sponsoring Banks must be tightened to reinforce their leadership role, thereby promoting effective transmission of sound governance practices to Village Banks. Third, institutional arrangements must ensure alignment between responsibilities and authority, clarifying the defined roles for central regulators, local financial bureaus, provincial rural credit union federations, and ultimate controllers to prevent the emergence of unbalanced or ambiguous governance structures. It is also essential to curb the growing complexity of pyramidal ownership structures, which exacerbates managerial difficulty and risk accumulation through multi-layered governance chains. This study contributes to the literature in three main ways. First, it addresses the longstanding corporate governance blind spot of Village Banks, highlighting the crucial role of transparency in overcoming governance challenges, and thereby enriching the banking governance literature within the banking sector. Second, using the context of Village Banks, the study provides empirical evidence on the dynamic effects of upper-tier parent company governance features on lower-tier subsidiaries within a pyramid ownership structure. It innovatively conceptualizes frames and empirically verifies governance transmission effects and sheds light on the “black box” of governance in pyramid structures. Third, by taking Village Banks as a case study, the paper reveals the positive spillover effects of parent corporate listing on the transparency and governance of controlled subsidiaries. It provides practical evidence supporting listing as a policy tool to promote transparency and governance standardization. From a policy perspective, this research offers actionable insights for improving Village Bank governance—particularly through enhancing transparency—and proposes a potential solution to one of the long-standing issues in China's financial system. Future research may expand this framework to explore horizontal transmission mechanisms, governance convergence, and broader system-level dynamics within Village Bank systems, thereby advancing theories in corporate and rural financial governance.
郑志刚, 杨宇, 黄继承, 胡晴. 发起行上市与村镇银行公司治理[J]. 金融研究, 2025, 537(3): 131-149.
ZHENG Zhigang, YANG Yu, HUANG Jicheng, HU Qing. The Listing of Sponsoring Banks and Corporate Governance of Village Banks. Journal of Financial Research, 2025, 537(3): 131-149.
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