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The cost effects of shadow banking activities and political intervention: Evidence from the banking sector in China

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  • Hou, Xiaohui
  • Li, Shuo
  • Guo, Pin
  • Wang, Qing

Abstract

In this paper, we examine how the shadow banking activities of Chinese commercial banks affect their cost efficiency. Furthermore, we investigate whether the relation between shadow banking activities and the bank cost efficiency changes across heterogeneous types of government political intervention in banks. We find that the growth of shadow banking activities has a significantly positive effect on the cost efficiency of Chinese commercial banks. In addition, evidence suggests that political intervention has detrimental effects on bank cost efficiency, which will weaken or dominate the positive relation between the growth of shadow banking activities and bank cost efficiency.

Suggested Citation

  • Hou, Xiaohui & Li, Shuo & Guo, Pin & Wang, Qing, 2018. "The cost effects of shadow banking activities and political intervention: Evidence from the banking sector in China," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 307-318.
  • Handle: RePEc:eee:reveco:v:57:y:2018:i:c:p:307-318
    DOI: 10.1016/j.iref.2018.01.019
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    Keywords

    Shadow banking activities; Political intervention; Cost efficiency; Quantile-Regression-Based thick frontier approach; China; G21; G28; D24;

    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
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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