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Institutional quality, banking marketization, and bank stability: Evidence from China

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  • Hou, Xiaohui
  • Wang, Qing

Abstract

This paper investigates the relationship between banking marketization and bank stability across different levels of institutional quality in China. Our results suggest that banking marketization does not inevitably have a negative impact on bank stability. One of the two banking marketization indicators, namely the proportion of deposits taken by non-state-owned commercial banks to total deposits, has a significant positive impact on bank stability; in contrast, the other indicator, the proportion of loans issued to non-state-owned hybrid-sector firms to total loans in China’s banking sector, is negatively associated with bank stability. Furthermore, an improvement of the institutional quality can reduce the adverse influence of banking marketization on bank stability on the whole.

Suggested Citation

  • Hou, Xiaohui & Wang, Qing, 2016. "Institutional quality, banking marketization, and bank stability: Evidence from China," Economic Systems, Elsevier, vol. 40(4), pages 539-551.
  • Handle: RePEc:eee:ecosys:v:40:y:2016:i:4:p:539-551
    DOI: 10.1016/j.ecosys.2016.01.003
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    1. repec:eee:jebusi:v:96:y:2018:i:c:p:15-41 is not listed on IDEAS

    More about this item

    Keywords

    Banking marketization; Institutional quality; Bank stability; China;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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