EconPapers    
Economics at your fingertips  
 

State Aid and Moral Hazard in Banking: The Case of China in the Late Nineties

X. Cheng and Patrick Van Cayseele
Authors registered in the RePEc Author Service: Xiaoqiang Cheng and Xiao Qing Cheng

Review of Business and Economic Literature, 2011, vol. 56, issue 1, 10-30

Abstract: Many contributions to the literature on competition in banking use the Panzar and Rosse test (1987). This test encompasses a variety of market outcomes assuming firms maximize profits. However, when applied to the banking industry, this assumption may not be always valid as banks sometimes may carry social objectives or aim to be systemic players so as to be “too big to fail†. This then motivates different objective functions, departing from profit maximization. We present a reduced form model where banks can pursue other goals than profit maximization. This allows us to test for behavioral changes of banks over time. Our model provides a framework to evaluate whether moral hazard issues may plague banks receiving state aid, which concerns greatly the recent debate on government intervention in financial markets during the global financial crisis in 2008. To test the impact of state aid, we examine a natural experiment in the banking sector in China in the 1990s. We cannot reject that the possibility of receiving state aid triggers moral hazard prone conduct.

Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sen:rebelj:v:56:i:1:y:2011:p:10-30

Access Statistics for this article

Review of Business and Economic Literature is currently edited by Hans Kluwer

More articles in Review of Business and Economic Literature from Intersentia
Bibliographic data for series maintained by Petra Van den Bempt ( this e-mail address is bad, please contact ).

 
Page updated 2022-09-22
Handle: RePEc:sen:rebelj:v:56:i:1:y:2011:p:10-30