Text readability of regulatory policies and bank profit efficiency

Using 554 banks from China over the 2009–2023 period, we empirically examine the impact of the regulatory policies' text readability on bank profit efficiency. The results show that enhanced text readability of banking regulatory policies significantly improves bank profit efficiency. The conclusion remains robust after endogeneity and robustness tests. We verify that enhanced regulatory policies' text readability will lead to an increase in bank proactive risk-taking and a reduction in bank compliance and operating costs, thereby increasing profit efficiency. Furthermore, we find that macroprudential regulation and bank financial technology (FinTech) development serve as negative moderating roles between regulatory policies' text readability and bank profit efficiency. Our research also indicates that the profit efficiency of non-state-owned banks and non-listed banks is more susceptible to the changes in regulatory policies' text readability.