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Liquidity creation and bank capital structure in China

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  • Lei, Adrian C.H.
  • Song, Zhuoyun

Abstract

This paper investigates the relationship between liquidity creation and bank capital structure in China. We test the so-called “financial fragility-crowding out” hypothesis and the “risk absorption” hypothesis on Chinese banks and find that bank capital is negatively related to liquidity creation, which supports the financial fragility-crowding out hypothesis. In contrast, we find that foreign banks in China have a weaker relationship between liquidity creation and bank capital, which is consistent with the risk absorption hypothesis and findings in prior studies.

Suggested Citation

  • Lei, Adrian C.H. & Song, Zhuoyun, 2013. "Liquidity creation and bank capital structure in China," Global Finance Journal, Elsevier, vol. 24(3), pages 188-202.
    • Handle: RePEc:eee:glofin:v:24:y:2013:i:3:p:188-202
    DOI: 10.1016/j.gfj.2013.10.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Liquidity creation; Bank capital structure; Financial fragility-crowding-out; Risk absorption; China;
    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

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