State Aid and Competition in Banking: the Case of China in the Late Nineties
Many contributions to the literature on competition in banking use the Panzar and Rosse test (1987). This test encompasses a variety of market outcomes assuming firms maximize profits. However, when applied to the banking industry, this assumption may not be always valid as banks sometimes may carry social objectives or aim to be systemic players so as to be "too big to fail". This then motivates different objective functions, departing from profit maximization. We present a reduced form model where banks can pursue other goals than profit maximization. This allows us to test for behavioral changes of banks over time. Our 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, we examine a natural experiment in the banking sector in China in the 1990s. We cannot reject that the possibility of receiving state aid triggers moral hazard prone conduct.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +32 (0) 16 / 32 6598
Fax: +32 (0) 16 / 32 6599
Web page: http://www.econ.kuleuven.be/licos
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- 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.
- Sapienza, Paola, 2004. "The effects of government ownership on bank lending," Journal of Financial Economics, Elsevier, vol. 72(2), pages 357-384, May.
- Robert B. Avery & Raphael W. Bostic & Glenn B. Canner, 2000. "The performance and profitability of CRA-related lending," Economic Commentary, Federal Reserve Bank of Cleveland, issue Nov.
- 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.
- Frédérique Bracoud, 2002.
"Sequential Models of Bertrand Competition for Deposits and Loans under Asymmetric Information,"
Keele Economics Research Papers
KERP 2002/15, Centre for Economic Research, Keele University.
- Frédérique Bracoud, 2002. "Sequential Models of Bertrand Competition for Deposits and Loans under Asymmetric Information," Game Theory and Information 0211002, EconWPA.
- 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.
- Dean Baker & Travis McArthur, 2009. "The Value of the “Too Big to Fail” Big Bank Subsidy," CEPR Reports and Issue Briefs 2009-36, Center for Economic and Policy Research (CEPR).
When requesting a correction, please mention this item's handle: RePEc:lic:licosd:25009. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.