Does the foreign negative list system aggravate domestic banking industry risks?

Zineb Hminna, Xuehuan Lu, Tianlei Dai and Huiping Gao
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Zineb Hminna: School of Business, Nanjing University of Information Science and Technology, Jiangsu, 210000, China
Xuehuan Lu: School of Business, Nanjing University of Information Science and Technology, Jiangsu, 210000, China
Tianlei Dai: School of Business, Nanjing University of Information Science and Technology, Jiangsu, 210000, China
Huiping Gao: Xuchang Branch, Bank of China, Henan, 461000, China

Journal of Information Economics, 2024, vol. 2, issue 2, 1-23

Abstract: In the context of the continuous deepening reform of the foreign investment negative list system and the increasing pressure on financial risk prevention and resolution, it is of great significance to study the impact of the foreign investment negative list system on banking risks. This study is conducted on the basis of systematically sorting out the mechanism of the foreign negative list system affecting the risks of domestic banks. Based on the panel data of 27 provinces (cities, districts) in China from 2006 to 2016, and comprehensively adopting the synthetic control method, the difference-in-difference (DID) model, mediating effect model, and other methods, this article systematically examines the impact of the foreign negative list system on Shanghai banking risks. The study found that the implementation of the foreign investment negative list system has significantly reduced the credit risk of the Shanghai banking industry, and this reduction effect has gradually strengthened over time. Additionally, the implementation of the foreign investment negative list system will also significantly reduce the liquidity risk of the Shanghai banking industry; However, the effect of this positive influence is short-lived and subsequently weakens. The analysis of the mechanism of action indicates that the foreign investment negative list system primarily reduces the risk of Shanghai's banking industry by stimulating the inflow of foreign capital and reducing government intervention. However, the effect of improving the level of the rule of law to mitigate commercial bank risk is not apparent. Regarding other influencing factors, the growth of local government financial resources and the increase in new loans have significantly reduced banking risks, while the rise in residents' leverage has substantially increased the level of banking risks.

Keywords: Negative List of Foreign Investment; Banking Risks; Synthetic Control Method (search for similar items in EconPapers)
Date: 2024
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