Will Off-Balance-Sheet Business Innovation Affect Bank Risk-Taking under the Background of Financial Technology?

Shuiwen Gao, Haifeng Gu (), Guillermo Andres Buitrago () and Habiba Halepoto
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Shuiwen Gao: Glorious Sun School of Business and Management, Donghua University, Shanghai 200051, China
Haifeng Gu: Glorious Sun School of Business and Management, Donghua University, Shanghai 200051, China
Guillermo Andres Buitrago: Shengxiang Business School, Sanda University, Shanghai 200120, China
Habiba Halepoto: Engineering Research Center of Digitized Textile and Fashion Technology, Donghua University, Shanghai 201620, China

Sustainability, 2023, vol. 15, issue 3, 1-20

Abstract: Given the rapid development of financial technology, the off-balance-sheet business innovations of banks may potentially impact bank risk-taking. This issue is of great importance to commercial banks and financial regulators. This paper analyzed the relationship between off-balance-sheet business innovation (OBI) and Bank Risk-Taking (BRT) in Chinese commercial banks, as well as the mediation role of the Bank Agency Cost (BAC), the impact of a bank’s Internal Control Quality (ICQ) on this relationship, and the moderating role of Bank Competition (BCMP) by analyzing panel data from a sample of 130 Chinese commercial banks from 2009 to 2019. The results of this empirical exercise showed that (1) OBI has a significant negative correlation with BRT, evidencing that off-balance-sheet business innovation can improve bank risk management processes and enhance the bank’s operating performance, thereby reducing their willingness to transfer risks, restraining the BRT level. Compared with state-owned and joint-stock banks, OBI has a more significant inhibitory effect on BRT in urban and rural commercial banks. (2) BAC showed a mediation role in the relationship between OBI and BRT levels. Bank OBI can inhibit BRT levels by BAC reduction, demonstrating an effective mediation channel. (3) The degree of BCMP displayed a positive moderation effect on the relationship between the explained and explanatory variables, which means that, at higher BCMP levels, the inhibitory effect of OBI on BRT levels becomes more significant. (4) Additionally, this exercise also found that a bank’s ICQ can enhance the impact of OBI on BRT. The research contributions of this paper constitute an important theoretical significance and reference value for researchers exploring mechanisms that can improve innovation in the commercial banking industry and give importance to financial supervision and financial system risk control.

Keywords: off-balance-sheet business innovation; bank risk-taking; agency cost; banking industry competition; internal control quality (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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