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Corporate bond defaults and spillover effects on bank risk: Evidence from city commercial banks in China

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  • Gao, Haoyu
  • Ouyang, Yiling
  • Wang, Yaxin

Abstract

This paper examines the spillover effects of corporate bond defaults on the non-performing loans of local city commercial banks. Using a staggered difference-in-differences model, we find that the emergence of corporate bond defaults significantly increases the non-performing loans of local banks. The spillover effects are pronounced in less diversified banks. Mechanism analyses show that the illiquidity contagion rather than the deteriorating fundamentals of local borrowers accounts for the rise in non-performing loans. We exclude the risk-taking explanation. Our findings suggest that bond defaults have spillover effects on the risk of local banks.

Suggested Citation

  • Gao, Haoyu & Ouyang, Yiling & Wang, Yaxin, 2024. "Corporate bond defaults and spillover effects on bank risk: Evidence from city commercial banks in China," Research in International Business and Finance, Elsevier, vol. 69(C).
  • Handle: RePEc:eee:riibaf:v:69:y:2024:i:c:s0275531924000448
    DOI: 10.1016/j.ribaf.2024.102252
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    More about this item

    Keywords

    Non-performing loans; Corporate bond defaults; Spillover effects; City commercial banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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