Internet finance development and banking market discipline: Evidence from China

Xiaohui Hou, Zhixian Gao and Qing Wang

Journal of Financial Stability, 2016, vol. 22, issue C, 88-100

Abstract: Depositor discipline is the only viable and universal source of banking market discipline in China. This paper investigates whether the depositor discipline of banking works in the context of an emerging economy under financial repression and implicit government guarantee, such as the Chinese economy; how banking market discipline is affected by Internet finance development; and whether the impact of Internet finance development on market discipline changes across heterogeneous banks. The results suggest that, in general, measures of bank risk are negatively associated with the growth of deposit volumes. Internet finance development alters the sensitivity of deposit growth ratios to some bank risk measures. For non-state-owned banks, fewer measures of bank risk are significantly negatively associated with the growth of deposit volumes, and the attenuation impact of Internet finance development on market discipline for bank capitalization instead relatively increases. For large banks, market discipline works significantly, except in the case of the bank capitalization variable; moreover, these significant market disciplines are strengthened with the development of Internet finance.

Keywords: Depositor behavior; Market discipline; Internet finance development; Emerging markets (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:22:y:2016:i:c:p:88-100

DOI: 10.1016/j.jfs.2016.01.001

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