Managing Information Sensitivity: The Relationship between the Interbank Offered Rate and the Characteristics of Bank-Issued Wealth Management Products in China

Gang Bai and Chunhui Chen ()
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Gang Bai: School of Finance, Southwestern University of Finance and Economics, Chengdu 611130, China
Chunhui Chen: School of Finance, Southwestern University of Finance and Economics, Chengdu 611130, China

Sustainability, 2023, vol. 15, issue 2, 1-19

Abstract: Unlike previous studies that focused on measures and changes in debts’ information sensitivity, this paper examines how banks in China manage the information sensitivity of wealth management products (WMPs), one of the most important assets in Chinese shadow banking. Employing the interbank offered rate to proxy investors’ incentives for private information production, we find when the interbank offered rate rises for newly issued WMPs, banks shorten their maturity, provide them with more guarantees, and reduce the risk of their underlying assets. Moreover, these effects are more pronounced in small and medium-sized banks (SMBs) relative to the largest five state-owned (Big5) banks. Furthermore, we also find that banks reduce the number of WMPs issued to institutional investors when the interbank offered rate rises, and this effect exists in both Big5 banks and SMBs. Our findings suggest that banks adjust the characteristics of WMPs to maintain WMPs’ information insensitivity when investors’ incentives to produce private information increase. These results also indicate that there is less need for Big5 banks to adjust WMPs’ characteristics since individual investors consider WMPs issued by Big5 to be safer and thus to have less incentive to produce private information. However, institutional investors understand WMPs’ risks better and, therefore, all banks reduce the number of issues to them when the interbank rate rises.

Keywords: information sensitivity; private information production; risk management; wealth management product; shadow banking (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
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