Information Disclosure, Market Discipline and the Management of Bank Capital: Evidence from the Chinese Financial Sector

Is there evidence that market forces effectively discipline risk management behaviour within Chinese financial institutions? This study analyses information from a comprehensive sample of Chinese banks over the 1998–2008 period. Market discipline is captured through the impact of four sets of factor...

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Bibliographic Details
Published in:Journal of financial services research 2010-12, Vol.38 (2-3), p.159-186
Main Authors: Wu, Yuliang, Bowe, Michael
Format: Article
Language:English
Subjects:
Bank management
Banking
Banking industry
Capital
Capital ratios
China
Chinese banking
Disclosure
Economic concentration
Economics and Finance
Finance
Financial institutions
Financial reporting
Financial Services
G21
G28
Incentives
Insolvency
Interest rates
Investors
Loans
Macroeconomics/Monetary Economics//Financial Economics
Market discipline
Public enterprise
Ratios
Risk management
Risk premiums
Studies
Transition economies
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Summary:Is there evidence that market forces effectively discipline risk management behaviour within Chinese financial institutions? This study analyses information from a comprehensive sample of Chinese banks over the 1998–2008 period. Market discipline is captured through the impact of four sets of factors namely, market concentration, interbank deposits, information disclosure, and ownership structure. We find some evidence of a market disciplining effect in that: (i) higher (lower) levels of market concentration lead banks to operate with a lower (higher) capital buffer; (ii) joint-equity banks that disclose more information to the public maintain larger capital ratios; (iii) full state ownership reduces the sensitivity of changes in a bank’s capital buffer to its level of risk;(iv) banks that release more transparent financial information hold more capital against their non-performing loans.
ISSN:0920-8550
1573-0735
DOI:10.1007/s10693-010-0091-6