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ne of the three indicators of bank performance: cost, noninterest income and net interest margin at time t for domestic bank I; FEIit is the foreign exposure index, which is an important explanatory variable; Xit is the bank variables’ vector which control factors that influence cross-bank’s preference, according to Clasessen et al. (2001), it includes: noninterest earning assets (NIA), equity, costs and customer and short-term costs funding.Ban, k capital or equity is measures the protection’s amount available to a bank and a cushion against fund malfunction.It was provided by Berger (1995) the evidence of US-based that there exist positive relationship between equity and profitability. NIAs consist of noninterest earning deposits and cash at other banks, so the NIS’s presence may express saving deposits, net interest deposits and time deposits.Generally, this kind of customer asset with a low interest cost, however, is costly from the required branching network. After normalized by total earning assets of the bank, all bank variables will be expressed as banking performance indicators, which will all in the terms of radio and  are composite error term. As usual,εitis the idiosyncratic error term; ηi represents specific effects in bank, which are time invariant, such as ownership, bank size, and location; andλtis a year dummies’ vector, representing the effect which change over time, such as other external shocks and regulatory reforms that can change the banking environment.One advantages of the disaggregated measure is that it allows for the model to eliminate the macroeconomic effect with theλtwhere the conventional measure of FDI can not, because it is one of the variables which vary by year.

Therefore, the model put forward for all regression is a model of two-way fixed effect which integrates both time-specific fixed effect and bank-specific effects.Firstly, it is important to integrate bank-specific effect because Chinese banks owns large difference in size, location and ownership, which is likely to be related to the explanatory variables including short-term funding and costs, equity. The Hausman test confirm that the a better fit for the data was provided by the fixed-effect model compared to the random-effect model. Secondly, it is also very important to introduce time-specific effect because the period of Chinese banking is experiencing important transformations is included in the observation period, which has experienced the reform of post- and pre-WTO accession.Bank performance is largely influenced by these reforms. If ignoring those effects, it would lead to misestimation of the FDI’s effects.Time-specific effect can deal with the effects of industry-wide reform, both unidentifiable and identifiable, which also can help to reduce the omitted variables problems in the model.

Bank variables such as noninterest short-term funding, earning assets and equity level and may be determined as all the performance indicators which can affect their levels in the model. Given that potential endogeneity problem is related to the model, it adopted the GMM (Difference General Methods of Moment) or the Arellano-Bond linear dynamic panel dataestimation in the second stage, so it can get the below specification:

(2)In this model, two lags of PIitare used by the model specification tests. Furthermore, the int本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。