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

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  • Zhang, Xing
  • Li, Fengchao
  • Ortiz, Jaime

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.

Suggested Citation

  • Zhang, Xing & Li, Fengchao & Ortiz, Jaime, 2021. "Internal risk governance and external capital regulation affecting bank risk-taking and performance: Evidence from P.R. China," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 276-292.
    • Handle: RePEc:eee:reveco:v:74:y:2021:i:c:p:276-292
    DOI: 10.1016/j.iref.2021.03.008
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    More about this item

    Keywords

    Bank risk-taking; Bank performance; Capital regulation; Government ownership; Risk governance; SYS-GMM;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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