 No-bailout event and local bank-government nexus in ChinaShanshan Li and Liping Lu International Review of Financial Analysis, 2023, vol. 89, issue C Abstract: We examine the impact of a no-bailout event on the local bank-government nexus in China in the context of a multi-level fiscal federalism. Using a difference-in-difference (DID) model, we find that the no-bailout event leads to a tighter relationship between the issuance premia of negotiable certificates of deposit (NCDs) by local banks and the fiscal strength of local governments. It also induces a higher divergence of issuance premia among cities with different fiscal strengths and local banks of different sizes. The divergence is weaker among province-level banks. We also find that the spread of urban construction investment bonds (UCIBs) decreases more in fiscally stronger cities, while that of provincial government bonds declines more in fiscally weaker provinces. The market discipline on governments is strengthened at the city level but weakened at the province level. It suggests that the decline of implicit guarantee, especially that of higher-level governments, is an essential channel for the changes of local bank-government nexus after the event. Keywords: No-bailout event; Market discipline; Bank-government nexus (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:89:y:2023:i:c:s1057521923003095 DOI: 10.1016/j.irfa.2023.102793 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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