Modern banking development during natural disasters: Evidence from the early 20th century China

Yang Cai and Dongxu Li

Journal of Empirical Finance, 2024, vol. 77, issue C

Abstract: How do commercial banks react to natural disasters? Using data for 375 droughts in 262 prefectures in China during 1906–1927, we find that drought-affected prefectures have more private bank inceptions than unaffected ones. The results remain robust to socioeconomic characteristics, foreign market exposure, and conditions of neighboring prefectures. This effect is driven by the prefectures with more agriculture-dependent enterprises, suggesting that banks meet local financial demand. On the other hand, new banks would enter less when the prefecture has more incumbent banks connected to drought-free areas. We argue that capital size and the network of capital reallocation are two advantages of banks coping with natural disasters over alternative financing vehicles such as pawn shops and foreign banks. In addition, the effect is greater among the prefectures practicing common law and with greater social capital, consistent with existing studies that bank credit supply depends on creditor rights protection. Finally, we show that drought-affected regions with more private bank inceptions have better development in agricultural businesses and social stability.

Keywords: Drought; Financial demand; Creditor rights protection; Bank development (search for similar items in EconPapers)
JEL-codes: G21 N95 Q5 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927539824000318
Full text for ScienceDirect subscribers only

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:eee:empfin:v:77:y:2024:i:c:s0927539824000318

DOI: 10.1016/j.jempfin.2024.101496

Access Statistics for this article

Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().