Moral hazard, external governance and risk-taking: Evidence from commercial banks in China

Zhiwei Zhang and Fei Wu

Finance Research Letters, 2020, vol. 37, issue C

Abstract: Using a sample of Chinese commercial banks from 2004 to 2017, this paper investigates whether and how external governance mitigates the moral hazard problem in these banks. China launched its first explicit deposit insurance program in 2015. Taking this program as an example, our empirical results show that the implementation of such a program indeed increases risk-taking of these commercial banks and provide evidence of the presence of moral hazard. We further document that improved external governance via a marketization process plays a role in reducing excessive risk-taking and mitigating the moral hazard problem in the Chinese banking sector.

Keywords: Commercial banks; Deposit insurance; External governance; Moral hazard; Risk-taking (search for similar items in EconPapers)
JEL-codes: G21 G28 O16 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:37:y:2020:i:c:s1544612319312577

DOI: 10.1016/j.frl.2019.101383

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