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Effects of shadow banking on bank risks from the view of capital adequacy

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  • Wu, Meng-Wen
  • Shen, Chung Hua

Abstract

This study examines two issues. First, we propose that a bank that engages in shadow banking tends to take considerable risks, and we call this effect the risk-taking hypothesis. Second, we examine whether good corporate governance can enhance or mitigate this effect of shadow banking on risk-taking. Our sample consists of 59 Chinese banks during 2010–2016. We represent shadow banking with three trust beneficiary rights: financial assets purchased under resale agreements, financial assets available for sale, and investment securities received. Our results support the risk-taking hypothesis and the tendency of good governance to significantly reduce the effect of shadow banking on risk-taking.

Suggested Citation

  • Wu, Meng-Wen & Shen, Chung Hua, 2019. "Effects of shadow banking on bank risks from the view of capital adequacy," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 176-197.
  • Handle: RePEc:eee:reveco:v:63:y:2019:i:c:p:176-197
    DOI: 10.1016/j.iref.2018.09.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Risk-taking; Shadow banking; Corporate governance; Capital adequacy ratio;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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