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Economic uncertainty or financial uncertainty? An empirical analysis of bank risk-taking in Asian emerging markets

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  • Wu, Ji
  • Li, Huimin
  • Zheng, Dazhi
  • Liu, Xiaoyan

Abstract

This paper examines the impact of economic uncertainty and financial uncertainty on the risk of banks in a sample of nine Asian emerging economies, using bank-level panel data over the period 2000–2014. After controlling for bank characteristics, macroeconomic conditions, financial regulations and some other market-level factors, we find consistent evidence that banks’ risk-taking tends to vary heterogeneously with increased economic and financial uncertainty, i.e., higher economic uncertainty is associated with higher bank risk-taking level while higher financial uncertainty is associated with lower bank risk-taking. Meanwhile, uncertainty likely exerts heterogeneous impact on banking markets with different ownership structure, as we find different nexus between uncertainty and the risk of foreign- /domestic state-owned banks.

Suggested Citation

  • Wu, Ji & Li, Huimin & Zheng, Dazhi & Liu, Xiaoyan, 2021. "Economic uncertainty or financial uncertainty? An empirical analysis of bank risk-taking in Asian emerging markets," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s1544612320303299
    DOI: 10.1016/j.frl.2020.101542
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    Cited by:

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    4. Yin, Doudou & Si, Deng-Kui & Wang, Yun, 2024. "How does corporate investment respond to trade policy uncertainty in China? The role of political connections," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 1429-1445.
    5. Wang, Xinya & Xu, Xin & Rong, Xueyun & Xuan, Siyuan, 2024. "Identification of the contagion effect in China's financial market uncertainties: A multiscale and dynamic perspective," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 1340-1362.
    6. Changjun Zheng & Shiying Chen & Zhenhuan Dong, 2021. "Economic Fluctuation, Local Government Bond Risk and Risk-Taking of City Commercial Banks," Sustainability, MDPI, vol. 13(17), pages 1-26, September.
    7. Dang, Van Dan & Nguyen, Hoang Chung, 2022. "Bank profitability under uncertainty," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 119-134.
    8. Ge, Xinyu & Liu, Yan & Zhuang, Jiali, 2023. "Monetary policy uncertainty, market structure and bank risk-taking: Evidence from China," Finance Research Letters, Elsevier, vol. 52(C).

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    More about this item

    Keywords

    Economic uncertainty; Financial uncertainty; Bank risk-taking; Emerging economies;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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