Internal risk governance and external capital regulation affecting bank risk-taking and performance: Evidence from P.R. China

Xing Zhang, Fengchao Li and Jaime Ortiz

International Review of Economics & Finance, 2021, vol. 74, issue C, 276-292

Abstract: This study analyses the relationship between risk governance mechanisms and bank risk-taking performance in 44 Chinese listed banks, between 2005 and 2018. The results support the role of governance as a business enabler rather than an inhibitor and confirm that internal risk governance and external capital regulation both help improve banks’ profitability. Moreover, capital regulation has a stronger effect on governance than of regulation in decreasing bank risk-taking behaviors. The role of risk governance in reducing banks’ risk-taking behaviors is weaker in banks with higher risk governance index, but stronger on bank performance. We also found that government ownership plays a fundamental risk-shifting role in reducing the effect of risk governance on market-based bank risk-taking. This suggests that the presence of governmental protection induces more risk-taking behaviors. Similarly, government ownership weakens the effect of risk governance on market-based bank performance, without totally offsetting it.

Keywords: Bank risk-taking; Bank performance; Capital regulation; Government ownership; Risk governance; SYS-GMM (search for similar items in EconPapers)
JEL-codes: G18 G21 G38 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:74:y:2021:i:c:p:276-292

DOI: 10.1016/j.iref.2021.03.008

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