Spillover effects of banking systemic risk on firms in China: A financial cycle analysis

Zhongbo Jing, Zhidong Liu, Liyao Qi and Xuan Zhang

International Review of Financial Analysis, 2022, vol. 82, issue C

Abstract: This paper investigates the spillover effects of banking sector risk on firms in China and explores the risk transmission channels from the perspective of financial cycle. We use the banking risk-taking and systemic risk as the proxies of financial booms and busts. Our study yields four main findings. First, the banking risk-taking reduces firm risk in financial booms. Higher financing costs and constraints, larger firm size and financing scale, and state ownership inhibit the spillover effects. Second, the banking systemic risk increases firm risk during financial busts. Higher financing costs and constraints, larger firm size and financing scale, and state ownership facilitate the spillover effects. Third, the magnitudes of banking risk spillovers vary across industries, and this effect is more pronounced in the manufacturing industry. Fourth, bank risk-taking affects firm risk differently through various channels in different leading periods. When leading 1 to 3quarters, banking risk-taking reduces firm risk, and channel variables inhibit the spillover effects. However, when leading 4 to 8 quarters, the rising bank risk-taking eventually increases firm risk, and channel variables amplify its spillover effects. Our study offers important policy implications for risk assessment and mitigation in the Chinese loan market.

Keywords: Financial cycle; Banking systemic risk; Firm risk; Spillover effects (search for similar items in EconPapers)
JEL-codes: E30 E44 G21 G32 (search for similar items in EconPapers)
Date: 2022
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:finana:v:82:y:2022:i:c:s1057521922001351

DOI: 10.1016/j.irfa.2022.102171

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