The double-edged sword effect of diversified operation on pre- and post-loan risk in the government-led Chinese commercial banks

Ailian Zhang, Shuyao Wang, Bai Liu and Jingyuan Fu

The North American Journal of Economics and Finance, 2020, vol. 54, issue C

Abstract: Under the background of China’s deregulation of financial institutions since 2004, Chinese commercial banks have undergone remarkable change from traditional lending activities to universal fee-based activities. This paper explores the effect of diversified operation on bank credit activities. We find that diversification can reduce pre-loan risk but increase post-loan risk. Besides, enhanced disclosure requirement of other comprehensive income can mitigate pre- and post-loan risk under diversified operation. Additionally, in the state-owned commercial banks where government function is primary, diversification reduces both pre- and post-loan risk. This paper aims to reveal the double-edged sword effect of diversification in the Chinese commercial banks which are more government-led.

Keywords: Pre-loan risk; Post-loan risk; Diversification; Other comprehensive income (search for similar items in EconPapers)
JEL-codes: G14 G21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301431

DOI: 10.1016/j.najef.2020.101246

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