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Liquidity creation and bank capital structure in China

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  • Lei, Adrian C.H.
  • Song, Zhuoyun

Abstract

This paper investigates the relationship between liquidity creation and bank capital structure in China. We test the so-called “financial fragility-crowding out” hypothesis and the “risk absorption” hypothesis on Chinese banks and find that bank capital is negatively related to liquidity creation, which supports the financial fragility-crowding out hypothesis. In contrast, we find that foreign banks in China have a weaker relationship between liquidity creation and bank capital, which is consistent with the risk absorption hypothesis and findings in prior studies.

Suggested Citation

  • Lei, Adrian C.H. & Song, Zhuoyun, 2013. "Liquidity creation and bank capital structure in China," Global Finance Journal, Elsevier, vol. 24(3), pages 188-202.
  • Handle: RePEc:eee:glofin:v:24:y:2013:i:3:p:188-202
    DOI: 10.1016/j.gfj.2013.10.004
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    References listed on IDEAS

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    1. repec:trp:01jefa:jefa0018 is not listed on IDEAS
    2. repec:spr:chfecr:v:4:y:2016:i:1:d:10.1186_s40589-016-0034-y is not listed on IDEAS
    3. Davydov, Denis & Fungáčová, Zuzana & Weill, Laurent, 2017. "Cyclicality of bank liquidity creation," BOFIT Discussion Papers 5/2017, Bank of Finland, Institute for Economies in Transition.
    4. Pavla Klepková Vodová & Daniel Stavárek, 2015. "Factors Affecting Sensitivity of Czech and Slovak Commercial Banks to Bank Run," Working Papers 0020, Silesian University, School of Business Administration.
    5. repec:eee:jbfina:v:81:y:2017:i:c:p:1-19 is not listed on IDEAS
    6. Jana Lastuvkova, 2015. "Determinants of the Slovak bank liquidity flows," MENDELU Working Papers in Business and Economics 2015-51, Mendel University in Brno, Faculty of Business and Economics.

    More about this item

    Keywords

    Liquidity creation; Bank capital structure; Financial fragility-crowding-out; Risk absorption; 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

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