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Internet finance development and banking market discipline: Evidence from China

Author

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  • Hou, Xiaohui
  • Gao, Zhixian
  • Wang, Qing

Abstract

Depositor discipline is the only viable and universal source of banking market discipline in China. This paper investigates whether the depositor discipline of banking works in the context of an emerging economy under financial repression and implicit government guarantee, such as the Chinese economy; how banking market discipline is affected by Internet finance development; and whether the impact of Internet finance development on market discipline changes across heterogeneous banks. The results suggest that, in general, measures of bank risk are negatively associated with the growth of deposit volumes. Internet finance development alters the sensitivity of deposit growth ratios to some bank risk measures. For non-state-owned banks, fewer measures of bank risk are significantly negatively associated with the growth of deposit volumes, and the attenuation impact of Internet finance development on market discipline for bank capitalization instead relatively increases. For large banks, market discipline works significantly, except in the case of the bank capitalization variable; moreover, these significant market disciplines are strengthened with the development of Internet finance.

Suggested Citation

  • Hou, Xiaohui & Gao, Zhixian & Wang, Qing, 2016. "Internet finance development and banking market discipline: Evidence from China," Journal of Financial Stability, Elsevier, vol. 22(C), pages 88-100.
    • Handle: RePEc:eee:finsta:v:22:y:2016:i:c:p:88-100
    DOI: 10.1016/j.jfs.2016.01.001
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    More about this item

    Keywords

    Depositor behavior; Market discipline; Internet finance development; Emerging markets;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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