Inhibitory effect of corporate bond default risk on bank liquidity creation

Yunlu Zhu, Yuheng Ren, Linshan Zeng and Xiaowei Chen

Finance Research Letters, 2025, vol. 77, issue C

Abstract: This study examines the impact of corporate bond defaults on the liquidity creation of urban commercial banks within the same province, employing a difference-in-differences model with a sample of 132 Chinese urban commercial banks from 2016 to 2022. The results indicate that corporate bond defaults impede the liquidity creation capacity of these banks, with risk-taking serving as a mediating factor in this process. The study also indicates that this inhibitory effect is more pronounced in urban commercial banks with a higher proportion of overdue loans.

Keywords: Bond default; Risk-taking; Liquidity creation (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:77:y:2025:i:c:s1544612325002752

DOI: 10.1016/j.frl.2025.107011

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