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State Aid and Competition in Banking: The Case of China in the Late Nineties

  • Xiaoqiang Cheng
  • Patrick VAN CAYSEELE

A reduced form model where banks can pursue other goals than profit maximization is presented. This allows us to test for behavioral changes of banks over time. This model provides a framework to evaluate whether moral hazard issues may plague banks receiving state aid, which concerns greatly the recent debate on government intervention in financial markets during the global financial crisis in 2008. To test the impact of state aid, a natural experiment in the banking sector in China in the 1990s is examined. The possibility of receiving state aid triggers moral hazard prone conduct cannot be rejected.

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Paper provided by eSocialSciences in its series Working Papers with number id:2435.

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Date of creation: Feb 2010
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Handle: RePEc:ess:wpaper:id:2435
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  1. Berger, Allen N. & Hasan, Iftekhar & Zhou, Mingming, 2009. "Bank ownership and efficiency in China: What will happen in the world's largest nation?," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 113-130, January.
  2. Chen, Xiaogang & Skully, Michael & Brown, Kym, 2005. "Banking efficiency in China: Application of DEA to pre- and post-deregulation eras: 1993-2000," China Economic Review, Elsevier, vol. 16(3), pages 229-245.
  3. Iraj Hashi & Darko Hajdukovic & Erjon Luci, 2005. "Can Government Policy Influence Industrial Competitiveness: Evidence from Poland and the Czech Republic," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 8(2), pages 1-22, November.
  4. Ramkishen S. Rajan & Sasidaran Gopalan, 2009. "Sales to Foreign Banks in Emerging Asia," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 7(3), pages 29-33, October.
  5. Sapienza, Paola, 2004. "The effects of government ownership on bank lending," Journal of Financial Economics, Elsevier, vol. 72(2), pages 357-384, May.
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