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Macro-prudential policy and systemic risk of real estate firms: Evidence from China

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  • Li, Xiao-Lin
  • Wang, Lijuan
  • Kong, Dongmin

Abstract

Using data of listed real estate firms (REFs) in China, we examine how macro-prudential policy affects their systemic risk. Employing a two-dimensional measure of systemic risk contribution and vulnerability, we find that macro-prudential policy reduces both dimensions of systemic risk. Deleveraging and lowering risk interconnectedness are two plausible channels. Asset-based policy instruments, including loan-to-value limits, are more effective than capital- and liquidity-based instruments. Moreover, rational use of macro-prudential tools helps stablize REFs’ operating performance by reducing their systemic risk. Our findings highlight the critical role of macro-prudential policy in balancing risk prevention and economic growth.

Suggested Citation

  • Li, Xiao-Lin & Wang, Lijuan & Kong, Dongmin, 2023. "Macro-prudential policy and systemic risk of real estate firms: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PC).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323008905
    DOI: 10.1016/j.frl.2023.104518
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