Expected government support and bank risk-taking: Evidence from China

Haifeng Bai, Shusong Ba, Wenli Huang and Wentao Hu

Finance Research Letters, 2020, vol. 36, issue C

Abstract: This research examines the impact of expected government support on banks’ risk-taking behaviour and, in particular, how its impact can be stronger on state-owned or listed banks. Using 75 banks in China for the 2007–2016 period, we find that the willingness for and capacity of government support enhance a bank's risk-taking behaviour by increasing non-performance loans as well as doubtful loans and decreasing the Z-score and the liquidity ratio. Furthermore, the moral hazard problem is further enhanced in state-owned banks but mitigated in listed banks. Our analysis enhances our understanding of the willingness for and capacity of government support and finds that more attention should be paid to the impact of market discipline on banks’ risk-taking behaviour.

Keywords: Expected government support; Bank risk-taking; China; State-owned banks; Listed banks (search for similar items in EconPapers)
JEL-codes: G21 G32 G4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:36:y:2020:i:c:s1544612319303289

DOI: 10.1016/j.frl.2019.101328

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