Effects of wealth management products on bank risk in China: The role of audit committee effectiveness

Hongyan Geng, Maoyong Cheng and Junrui Zhang

Pacific Economic Review, 2021, vol. 26, issue 5, 575-616

Abstract: Using data from 114 Chinese banks from 2009 to 2018, we examine the effects of wealth management products (WMPs) on bank risk and the role of audit committee effectiveness. Three main results emerge. First, WMPs increase bank risk, especially insolvency risk, portfolio risk, leverage risk, and ROA volatility. Second, the effects of WMPs on bank risk are weaker in banks whose audit committee members have more financial expertise or longer board tenures. Third, further results show that: (a) principal‐guaranteed WMPs have weaker effects on bank risk than principal‐floating WMPs; (b) the policy known as “Notice 8” issued in 2013 weakens the effects of WMPs on bank risk; and (c) short‐term WMPs have stronger effects on bank risk than medium‐term and long‐term WMPs.

Date: 2021
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