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Strengthening of financial regulation and financial enterprise risk-taking: Analysis based on threshold effects, subindustry heterogeneity, and the moderating role of firm size

Author

Listed:
  • Huang, Lilong
  • Zhuang, Yikun
  • Dong, Dongdong
  • Dong, Xueqin

Abstract

Amid the growing complexity of the global financial system and tightening regulatory standards, this study examines the relationship between intensified financial regulation and the risk-taking behavior of financial enterprises. Using a comprehensive dataset of publicly traded financial firms from 2009 to 2022, the analysis reveals a nuanced relationship: stronger financial regulation generally enhances these enterprises' risk-taking capacity, but the correlation displays a clear threshold effect. By segmenting the data across financial banking, insurance, and securities subsectors, the study identifies distinct differences in how each sector responds to regulatory changes. Notably, firm size emerges as a key moderating factor, significantly amplifying the positive effect of stricter financial regulation on risk-taking, particularly within the banking industry. This research advances theoretical understanding of the regulation–risk nexus and offers policymakers robust empirical evidence and strategic insights to refine regulatory frameworks, safeguard financial stability, and promote sustainable growth.

Suggested Citation

  • Huang, Lilong & Zhuang, Yikun & Dong, Dongdong & Dong, Xueqin, 2025. "Strengthening of financial regulation and financial enterprise risk-taking: Analysis based on threshold effects, subindustry heterogeneity, and the moderating role of firm size," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    • Handle: RePEc:eee:finana:v:104:y:2025:i:pa:s1057521925003837
    DOI: 10.1016/j.irfa.2025.104296
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