Corporate Governance and Regulatory Breaches of China Listed Banks Based on Natural Language Processing Approach

This study analyzes text content extracted from 57,780 administrative penalty notices issued by the China Banking and Insurance Regulatory Commission (CBIRC) between 2003 and 2023. We identified 12,405 regulatory breaches’ records related to listed banks from the penalty notices. Our study investigates the relationship between corporate governance factors and regulatory breaches. We develop a regulatory strength index (RSI) for the financial sector and a regulatory breach index (RBI) for individual banks. Regression analysis reveals that increased board diversity correlates with a lower future RBI which indicates less operational risk. Our findings suggest that higher average employee salaries contribute to reducing regulatory breaches in listed banks. These findings can help commercial banks reduce regulatory risk by improving corporate governance and our study provide a theoretical ground for central banks and supervisory bureaus.