The Market Reactions to the Cross-Border Banking-Evidence of Taiwan Banks in China
Shuching Chou, Shin-Hung Lin, Hui-Lan Yang, Yi-Ting Shen

Abstract
In 2010, China and Taiwan signed the Economic Cooperation Framework Agreement (ECFA) that allows Taiwan banks to establish branches in China. This study examines the market reactions to the cross-border financial service integration of Taiwan banks. We find that investors reacted positively when cross-Strait banking was approved by the Taiwanese government, and when branches of Taiwan banks started to operate in China. Interest revenue is the major source of income in the early stage of cross-border banking. The increasing loan and investors’ positive reaction imply that information asymmetry problem for firms in foreign credit market might be alleviated through cross-border financial service integration.

Full Text: PDF