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Do firm-level factors play forward-looking role for financial systemic risk: Evidence from China

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  • Li, Xindan
  • Yu, Honghai
  • Fang, Libing
  • Xiong, Cheng

Abstract

This paper examines the firm-level driving factors of the systemic risk in the Chinese banking system. To more accurately estimate the systemic risk, we take asymmetric and fat-tailed financial returns into consideration. Our empirical results reveal that the Chinese banks' systemic risk contribution reached the highest level during the stock market crash in 2015. The panel regression results imply that banks' size, leverage, loans, non-performing loans and demand deposits positively drive their systemic risk contribution, and ROA, loan-loss provisions and time deposits shows a negative relationship. Moreover, individual bank's VaR increase its systemic risk contribution, which means that the riskier individual bank contributes more to the systemic risk. The forward-looking role of the firm-level factors can potentially be used for macro-prudential regulation.

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  • Li, Xindan & Yu, Honghai & Fang, Libing & Xiong, Cheng, 2019. "Do firm-level factors play forward-looking role for financial systemic risk: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x18300544
    DOI: 10.1016/j.pacfin.2018.10.003
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    Cited by:

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    3. Bellavite Pellegrini, Carlo & Cincinelli, Peter & Meoli, Michele & Urga, Giovanni, 2022. "The contribution of (shadow) banks and real estate to systemic risk in China," Journal of Financial Stability, Elsevier, vol. 60(C).

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