 Maturity mismatch and incentives: Evidence from bank issued wealth management products in ChinaRonghua Luo, Hongyan Fang, Jinjin Liu and Senyang Zhao Journal of Banking & Finance, 2019, vol. 107, issue C, - Abstract: Commercial banks in China issued a multitude of wealth management products (WMPs) from 2009 to 2016. These products are largely short-term, but a significant proportion of capital is allocated to long-term investments. In this paper, we first construct a measure of WMP maturity mismatch for each bank in each quarter using R2s from regressing expected yields of WMPs on expected yields of banks’ generally claimed investment assets. The degree of maturity mismatch is positively related to banks’ quarter-end non-performing loan ratio (NPLR), after accounting for time-varying bank characteristics, bank and time fixed effects. The result indicates that severer mismatch is associated with reduced NPLR. Cross-sectionally, the positive relation is stronger in big banks and when banks had a larger NPLR in the previous quarter. The results highlight the fact that regulated commercial banks use financial innovation and exploit maturity mismatch in their issued WMPs to evade regulator's credit risk monitoring. Keywords: Wealth management products; Maturity mismatch; Non-performing loan ratio (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:jbfina:v:107:y:2019:i:c:14 DOI: 10.1016/j.jbankfin.2019.105615 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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