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Financial Structure and Systemic Risk of Banks: Evidence from Chinese Reform

Author

Listed:
  • Guseon Ji

    (Moon Soul Graduate School of Future Strategy, Korea Advanced Institute of Science and Technology (KAIST), Daejeon 34141, Korea)

  • Daniel Sungyeon Kim

    (HSBC Business School, Peking University, Shenzhen 518055, China)

  • Kwangwon Ahn

    (Moon Soul Graduate School of Future Strategy, Korea Advanced Institute of Science and Technology (KAIST), Daejeon 34141, Korea)

Abstract

Using Chinese data from 2006 to 2014, we find that a shift in the financial structure towards a more market-based structure can reduce the systemic risk of the banking sector. One transmission channel through which this occurs is the improvement in an individual firm’s debt repaying capacity, which is positively influenced by the development of stock markets. Another channel is the enhanced credit monitoring of borrowers by banks, owing to their slower credit growth. Our results imply that the shift toward market-based financial structure could lead to the development of financial market as well as the enhancement of the stability of an economy.

Suggested Citation

  • Guseon Ji & Daniel Sungyeon Kim & Kwangwon Ahn, 2019. "Financial Structure and Systemic Risk of Banks: Evidence from Chinese Reform," Sustainability, MDPI, vol. 11(13), pages 1-22, July.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:13:p:3721-:d:246506
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