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Effects of shadow banking on bank risks from the view of capital adequacy

Meng-Wen Wu and Chung Hua Shen

International Review of Economics & Finance, 2019, vol. 63, issue C, 176-197

Abstract: This study examines two issues. First, we propose that a bank that engages in shadow banking tends to take considerable risks, and we call this effect the risk-taking hypothesis. Second, we examine whether good corporate governance can enhance or mitigate this effect of shadow banking on risk-taking. Our sample consists of 59 Chinese banks during 2010–2016. We represent shadow banking with three trust beneficiary rights: financial assets purchased under resale agreements, financial assets available for sale, and investment securities received. Our results support the risk-taking hypothesis and the tendency of good governance to significantly reduce the effect of shadow banking on risk-taking.

Keywords: Risk-taking; Shadow banking; Corporate governance; Capital adequacy ratio (search for similar items in EconPapers)
JEL-codes: C33 G21 G32 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.iref.2018.09.004

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