Do different forms of government ownership matter for bank capital behavior?: Evidence from China

Chunxia Jiang; Hong Liu; Phil Molyneux

doi:10.1016/j.jfs.2018.11.005

Do different forms of government ownership matter for bank capital behavior? Evidence from China

Chunxia Jiang^* (Corresponding Author), Hong Liu^* (Corresponding Author), Phil Molyneux^* (Corresponding Author)

^*Corresponding author for this work

Accountancy & Finance, Finance

Research output: Contribution to journal › Article › peer-review

11 Citations (Scopus)

9 Downloads (Pure)

Abstract

This study attempts to reconcile the conflicting theoretical predictions regarding how government ownership affects bank capital behaviour. Using a unique Chinese bank dataset over 2006-2015 we find that government-owned banks have higher target capital ratios and adjust these ratios faster compared to private banks, supporting the ‘development/political’ view of the government’s role in banking. This effect is stronger for local government-owned and state enterprise-owned banks than for central government-owned banks. We also find that undercapitalized government-owned banks increase equity while undercapitalized foreign banks contract assets and liabilities as their respective main strategy to adjust their capital ratios.

Original language	English
Pages (from-to)	38-49
Number of pages	12
Journal	Journal of Financial Stability
Volume	40
Early online date	28 Nov 2018
DOIs	https://doi.org/10.1016/j.jfs.2018.11.005
Publication status	Published - Feb 2019

Bibliographical note

We are grateful for comments from Iftekhar Hasan (the Editor), three anonymous referees, Kose John, Bill Francis, and participants at various seminars, the IFABS Barcelona Conference (2016), and Wolpertinger Conference Santander (2017). All errors and omissions are of course the responsibility of the authors. This research is financially supported by National Natural Science Foundation of China (No.:
71363014).

Keywords

banking
capital
adjustment speed
government ownership
China
Government ownership
Adjustment speed
Banking
Capital

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© 2018. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Accepted author manuscript, 239 KBLicence: CC BY-NC-ND

Cite this

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title = "Do different forms of government ownership matter for bank capital behavior?: Evidence from China",

abstract = "This study attempts to reconcile the conflicting theoretical predictions regarding how government ownership affects bank capital behaviour. Using a unique Chinese bank dataset over 2006-2015 we find that government-owned banks have higher target capital ratios and adjust these ratios faster compared to private banks, supporting the {\textquoteleft}development/political{\textquoteright} view of the government{\textquoteright}s role in banking. This effect is stronger for local government-owned and state enterprise-owned banks than for central government-owned banks. We also find that undercapitalized government-owned banks increase equity while undercapitalized foreign banks contract assets and liabilities as their respective main strategy to adjust their capital ratios. ",

keywords = "banking, capital, adjustment speed, government ownership, China, Government ownership, Adjustment speed, Banking, Capital",

author = "Chunxia Jiang and Hong Liu and Phil Molyneux",

note = "We are grateful for comments from Iftekhar Hasan (the Editor), three anonymous referees, Kose John, Bill Francis, and participants at various seminars, the IFABS Barcelona Conference (2016), and Wolpertinger Conference Santander (2017). All errors and omissions are of course the responsibility of the authors. This research is financially supported by National Natural Science Foundation of China (No.: 71363014).",

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doi = "10.1016/j.jfs.2018.11.005",

language = "English",

volume = "40",

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T1 - Do different forms of government ownership matter for bank capital behavior?

T2 - Evidence from China

AU - Jiang, Chunxia

AU - Liu, Hong

AU - Molyneux, Phil

N1 - We are grateful for comments from Iftekhar Hasan (the Editor), three anonymous referees, Kose John, Bill Francis, and participants at various seminars, the IFABS Barcelona Conference (2016), and Wolpertinger Conference Santander (2017). All errors and omissions are of course the responsibility of the authors. This research is financially supported by National Natural Science Foundation of China (No.: 71363014).

PY - 2019/2

Y1 - 2019/2

N2 - This study attempts to reconcile the conflicting theoretical predictions regarding how government ownership affects bank capital behaviour. Using a unique Chinese bank dataset over 2006-2015 we find that government-owned banks have higher target capital ratios and adjust these ratios faster compared to private banks, supporting the ‘development/political’ view of the government’s role in banking. This effect is stronger for local government-owned and state enterprise-owned banks than for central government-owned banks. We also find that undercapitalized government-owned banks increase equity while undercapitalized foreign banks contract assets and liabilities as their respective main strategy to adjust their capital ratios.

AB - This study attempts to reconcile the conflicting theoretical predictions regarding how government ownership affects bank capital behaviour. Using a unique Chinese bank dataset over 2006-2015 we find that government-owned banks have higher target capital ratios and adjust these ratios faster compared to private banks, supporting the ‘development/political’ view of the government’s role in banking. This effect is stronger for local government-owned and state enterprise-owned banks than for central government-owned banks. We also find that undercapitalized government-owned banks increase equity while undercapitalized foreign banks contract assets and liabilities as their respective main strategy to adjust their capital ratios.

KW - banking

KW - capital

KW - adjustment speed

KW - government ownership

KW - China

KW - Government ownership

KW - Adjustment speed

KW - Banking

KW - Capital

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SP - 38

EP - 49

JO - Journal of Financial Stability

JF - Journal of Financial Stability

ER -

Do different forms of government ownership matter for bank capital behavior? Evidence from China

Abstract

Bibliographical note

Keywords

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Chunxia Jiang

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Do different forms of government ownership matter for bank capital behavior? Evidence from China

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Bibliographical note

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Chunxia Jiang

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