IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v107y2019ic14.html
   My bibliography  Save this article

Maturity mismatch and incentives: Evidence from bank issued wealth management products in China

Author

Listed:
  • Luo, Ronghua
  • Fang, Hongyan
  • Liu, Jinjin
  • Zhao, Senyang

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.

Suggested Citation

  • Luo, Ronghua & Fang, Hongyan & Liu, Jinjin & Zhao, Senyang, 2019. "Maturity mismatch and incentives: Evidence from bank issued wealth management products in China," Journal of Banking & Finance, Elsevier, vol. 107(C), pages 1-1.
    • Handle: RePEc:eee:jbfina:v:107:y:2019:i:c:14
    DOI: 10.1016/j.jbankfin.2019.105615
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426619301906
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbankfin.2019.105615?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chen, Zhuo & He, Zhiguo & Liu, Chun, 2020. "The financing of local government in China: Stimulus loan wanes and shadow banking waxes," Journal of Financial Economics, Elsevier, vol. 137(1), pages 42-71.
    2. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    3. Liang, Qi & Xu, Pisun & Jiraporn, Pornsit, 2013. "Board characteristics and Chinese bank performance," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2953-2968.
    4. Allen, Franklin & Qian, Yiming & Tu, Guoqian & Yu, Frank, 2019. "Entrusted loans: A close look at China's shadow banking system," Journal of Financial Economics, Elsevier, vol. 133(1), pages 18-41.
    5. Ding Lu & Shandre Thangavelu & Qing Hu, 2005. "Biased Lending and Non-performing Loans in China's Banking Sector," Journal of Development Studies, Taylor & Francis Journals, vol. 41(6), pages 1071-1091.
    6. Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013. "Securitization without risk transfer," Journal of Financial Economics, Elsevier, vol. 107(3), pages 515-536.
    7. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    8. Zhiguo He & Wei Xiong, 2012. "Dynamic Debt Runs," Review of Financial Studies, Society for Financial Studies, vol. 25(6), pages 1799-1843.
    9. Chen, Yunling & Liu, Ming & Su, Jun, 2013. "Greasing the wheels of bank lending: Evidence from private firms in China," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2533-2545.
    10. Kaiji Chen & Jue Ren & Tao Zha, 2018. "The Nexus of Monetary Policy and Shadow Banking in China," American Economic Review, American Economic Association, vol. 108(12), pages 3891-3936, December.
    11. Jiang, Chunxia & Yao, Shujie & Feng, Genfu, 2013. "Bank ownership, privatization, and performance: Evidence from a transition country," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3364-3372.
    12. Arvind Krishnamurthy & Stefan Nagel & Dmitry Orlov, 2014. "Sizing Up Repo," Journal of Finance, American Finance Association, vol. 69(6), pages 2381-2417, December.
    13. Daniel Covitz & Nellie Liang & Gustavo A. Suarez, 2013. "The Evolution of a Financial Crisis: Collapse of the Asset-Backed Commercial Paper Market," Journal of Finance, American Finance Association, vol. 68(3), pages 815-848, June.
    14. Zhang, Dayong & Cai, Jing & Dickinson, David G. & Kutan, Ali M., 2016. "Non-performing loans, moral hazard and regulation of the Chinese commercial banking system," Journal of Banking & Finance, Elsevier, vol. 63(C), pages 48-60.
    15. Rao, Pingui & Yue, Heng & Zhu, Jigao, 2015. "An investigation of credit borrower concentration," Journal of Banking & Finance, Elsevier, vol. 54(C), pages 208-221.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Deng, Wei & Gao, Lei & Xing, Fei & Yang, Ming, 2023. "Economic policy uncertainty, bank deposits, and liability structure," Emerging Markets Review, Elsevier, vol. 55(C).
    2. Huang, Yong & Yan, Chao & Chan, Kam C., 2022. "Does the truth rest with the minority? Divergent views on nonfinancial firms' financial investments from the private equity market," International Review of Financial Analysis, Elsevier, vol. 83(C).
    3. Huang, Jin & Jin, Yong & Duan, Yang & She, Yanling, 2023. "Do Chinese firms speculate during high economic policy uncertainty? Evidence from wealth management products," International Review of Financial Analysis, Elsevier, vol. 87(C).
    4. Wang, Zhanhao & Zhao, Hong & Li, Lingxiang, 2022. "The positive side of bank wealth management products: Evidence from bank lending rate," Journal of Financial Stability, Elsevier, vol. 58(C).
    5. Peng Liao, 2020. "Interaction between Non-standard Debt and Wealth Management Products in China," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(5), pages 1-8.
    6. Gang Bai & Chunhui Chen, 2023. "Managing Information Sensitivity: The Relationship between the Interbank Offered Rate and the Characteristics of Bank-Issued Wealth Management Products in China," Sustainability, MDPI, vol. 15(2), pages 1-19, January.
    7. Shah, Syed Mehmood Raza & Fu, Qiang & Dawood, Muhammad & Ishfaq, Muhammad, 2020. "Issuance of Wealth Management Products and Expected Yields; A Shadow Banking Perspective," MPRA Paper 104147, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Feng, Xu & Lütkebohmert, Eva & Xiao, Yajun, 2022. "Wealth management products, banking competition, and stability: Evidence from China," Journal of Economic Dynamics and Control, Elsevier, vol. 137(C).
    2. Kristian Blickle & Markus Brunnermeier & Stephan Luck, 2020. "Micro-evidence from a System-wide Financial Meltdown: The German Crisis of 1931," Working Papers 275, Princeton University, Department of Economics, Center for Economic Policy Studies..
    3. Antoine Martin & David Skeie & Ernst-Ludwig von Thadden, 2014. "Repo Runs," The Review of Financial Studies, Society for Financial Studies, vol. 27(4), pages 957-989.
    4. Schroth, Enrique & Suarez, Gustavo A. & Taylor, Lucian A., 2014. "Dynamic debt runs and financial fragility: Evidence from the 2007 ABCP crisis," Journal of Financial Economics, Elsevier, vol. 112(2), pages 164-189.
    5. Tobias Adrian & Nellie Liang, 2018. "Monetary Policy, Financial Conditions, and Financial Stability," International Journal of Central Banking, International Journal of Central Banking, vol. 14(1), pages 73-131, January.
    6. Daniel Covitz & Nellie Liang & Tobias Adrian, 2015. "Financial Stability Monitoring," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 357-395, December.
    7. Lawrence Schmidt & Allan Timmermann & Russ Wermers, 2016. "Runs on Money Market Mutual Funds," American Economic Review, American Economic Association, vol. 106(9), pages 2625-2657, September.
    8. Timmermann, Allan & Wermers, Russ, 2014. "Runs on Money Market Funds," CEPR Discussion Papers 9906, C.E.P.R. Discussion Papers.
    9. You Suk Kim & Steven M. Laufer & Karen Pence & Richard Stanton & Nancy Wallace, 2018. "Liquidity Crises in the Mortgage Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(1 (Spring), pages 347-428.
    10. Eisenbach, Thomas M., 2017. "Rollover risk as market discipline: A two-sided inefficiency," Journal of Financial Economics, Elsevier, vol. 126(2), pages 252-269.
    11. Li, Yi, 2021. "Reciprocal lending relationships in shadow banking," Journal of Financial Economics, Elsevier, vol. 141(2), pages 600-619.
    12. Xuewen Liu, 2023. "A Model of Systemic Bank Runs," Journal of Finance, American Finance Association, vol. 78(2), pages 731-793, April.
    13. Allen, Franklin & Gu, Xian & Li, C. Wei & Qian, Jun “QJ” & Qian, Yiming, 2023. "Implicit guarantees and the rise of shadow banking: The case of trust products," Journal of Financial Economics, Elsevier, vol. 149(2), pages 115-141.
    14. Christophe Pérignon & David Thesmar & Guillaume Vuillemey, 2018. "Wholesale Funding Dry‐Ups," Journal of Finance, American Finance Association, vol. 73(2), pages 575-617, April.
    15. Carlos Arteta & Mark Carey & Ricardo Correa & Jason Kotter, 2020. "Revenge of the Steamroller: ABCP as a Window on Risk Choices," Review of Finance, European Finance Association, vol. 24(3), pages 497-528.
    16. Kristian Blickle & Markus K. Brunnermeier & Stephan Luck, 2022. "Who Can Tell Which Banks Will Fail?," NBER Working Papers 29753, National Bureau of Economic Research, Inc.
    17. Frédéric Boissay & Russell Cooper, 2014. "The Collateral Trap," NBER Working Papers 20703, National Bureau of Economic Research, Inc.
    18. Zhiguo He & Asaf Manela, 2016. "Information Acquisition in Rumor‐Based Bank Runs," Journal of Finance, American Finance Association, vol. 71(3), pages 1113-1158, June.
    19. Anat R. Admati & Peter M. DeMarzo & Martin F. Hellwig & Paul Pfleiderer, 2010. "Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Expensive," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2010_42, Max Planck Institute for Research on Collective Goods.
    20. Ari, Anil & Darracq Pariès, Matthieu & Kok, Christoffer & Żochowski, Dawid, 2016. "When shadows grow longer: shadow banking with endogenous entry," Working Paper Series 1943, European Central Bank.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:107:y:2019:i:c:14. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.