Motivations for Loan Herding by Chinese Banks and Its Impact on Bank Performance

Hao Fang, Yen‐Hsien Lee, Chung‐Hua Shen and Chien‐Ping Chung

China & World Economy, 2019, vol. 27, issue 4, 29-52

Abstract: This study uses a dynamic herding model that considers intertemporal and cross‐sectional correlation to confirm that loan herding occurs among joint‐stock commercial banks (JSCBs) and city commercial banks (CCBs). We clarify the motivations for bank loan herding. We find that loan herding by both JSCBs and CCBs results more from following the behavior of other same‐type banks than different‐type banks because of characteristic herding or reputational concerns. Loan herding by JSCBs is motivated by investigative herding, whereas loan herding by CCBs results from informational cascades. Moreover, loan herding has a significantly harmful impact on the operating performance of CCBs but not JSCBs, which may be explained by the irrational behavior of CCBs. Our results will help Chinese bank supervisors develop appropriate policies for handling loan herding.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/cwe.12285

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:chinae:v:27:y:2019:i:4:p:29-52

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1671-2234

Access Statistics for this article

China & World Economy is currently edited by Yongding Yu

More articles in China & World Economy from Institute of World Economics and Politics, Chinese Academy of Social Sciences Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().