Financial safety net and market discipline—evidence from negotiable certificates of deposit in China

Shanshan Li and Zhuorui Yi

Asia-Pacific Journal of Accounting & Economics, 2025, vol. 32, issue 4, 770-796

Abstract: This paper integrates two crucial aspects of the financial safety net into a unified framework: explicit clarification of insurance coverage and a no-bailout event in China. Employing the Difference-in-Difference (DID) methodology, we illustrate that both events exert a more pronounced reinforcing effect on the market discipline of regional banks compared to national counterparts. Further investigation unveils that deposit insurance imposes a broader impact on regional banks than the no-bailout event. Additionally, both events exert a more lasting effect on market discipline compared to market-level shocks that are unrelated to implicit guarantees or merely represent a transient enhancement of financial support.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:taf:raaexx:v:32:y:2025:i:4:p:770-796

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DOI: 10.1080/16081625.2024.2396313

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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