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State ownership, cross-border acquisition, and risk-taking: Evidence from China’s banking industry

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  • Zhu, Wenyu
  • Yang, Jiawen

Abstract

Does state ownership breed risk-taking behavior in commercial banks? This paper examines this issue using a panel of Chinese banks. We find that state-ownership is in general associated with higher risks. In addition, we find that banks controlled by the central government have the highest credit risk, while those owned by local governments have the lowest capital adequacy ratio and liquidity ratio. By compiling a complete list of cross-border acquisitions in China’s banking sector, we investigate the impact of foreign acquisition on state-owned banks’ risk-taking using differences-in-differences and matching estimators. We find that foreign acquisition has a reducing effect on state-owned banks’ risk-taking and this effect is particularly significant for banks that are controlled by central or local government. We also find that this risk-reducing effect depends on the percentage of foreign ownership, the local business involvement of the foreign investors, and the number of foreign members on the banks’ boards of directors.

Suggested Citation

  • Zhu, Wenyu & Yang, Jiawen, 2016. "State ownership, cross-border acquisition, and risk-taking: Evidence from China’s banking industry," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 133-153.
  • Handle: RePEc:eee:jbfina:v:71:y:2016:i:c:p:133-153
    DOI: 10.1016/j.jbankfin.2016.05.004
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    Cited by:

    1. repec:eee:corfin:v:51:y:2018:i:c:p:275-315 is not listed on IDEAS
    2. Mamatzakis, Emmanuel & Zhang, Xiaoxiang & Wang, Chaoke, 2017. "Ownership structure and bank performance: An emerging market perspective," MPRA Paper 80653, University Library of Munich, Germany.
    3. repec:bla:jscmgt:v:54:y:2018:i:4:p:3-19 is not listed on IDEAS
    4. repec:eee:riibaf:v:46:y:2018:i:c:p:251-256 is not listed on IDEAS
    5. repec:eee:pacfin:v:53:y:2019:i:c:p:432-448 is not listed on IDEAS
    6. repec:eee:chieco:v:53:y:2019:i:c:p:324-341 is not listed on IDEAS
    7. Cheng, Maoyong & Geng, Hongyan & Zhang, Junrui, 2016. "Chinese commercial banks: Benefits from foreign strategic investors?," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 147-172.

    More about this item

    Keywords

    State ownership; Bank risk; Foreign acquisition;

    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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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