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Politicians' Promotion Incentives and Bank Risk Exposure

Author

Listed:
  • Li Wang
  • Lukas Menkhoff
  • Michael Schröder
  • Xian Xu

Abstract

This paper shows that politicians’ pressure to climb the career ladder increases bank risk exposure in their region. Chinese local politicians are set growth targets in their region that are relative to each other. Growth is stimulated by debt-financed programs which are mainly financed via bank loans. The stronger the performance pressure the riskier the respective local bank exposure becomes. This effect holds for local banks which are under some control of local politicians, it has increased with the release of stimulus packages requiring local co-financing and it is stronger if politicians hold chairmen positions in bank boards.

Suggested Citation

  • Li Wang & Lukas Menkhoff & Michael Schröder & Xian Xu, 2018. "Politicians' Promotion Incentives and Bank Risk Exposure," Discussion Papers of DIW Berlin 1771, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1771
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.608072.de/dp1771.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank lending; bank risk exposure; local politicians; promotion pressure;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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