BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 16/2014:
Bank capital, adjustment and ownership: Evidence from China
Philip Molyneux ()
, Hong Liu ()
and Chunxia Jiang ()
Abstract: We investigate ownership effects on capital and
adjustments speed to the target capital ratio in China from 2000 to 2012
and find that state-owned banks hold higher levels of capital than banks of
other ownership types. Foreign banks are more highly capitalized than local
non-state banks but under-capitalized compared with the bigger non-state
banks with nationwide presence. Foreign banks adjust risk-weighted capital
towards their optimal targets at a slower speed than domestic banks, while
foreign minority ownership results in a faster adjustment process. Capital
is positively influenced by profitability, asset diversification and
liquidity risk, but negatively influenced by bank market power. Capital
ratios typically co-move with the business cycle although this relationship
is reversed during the crisis period due to active government intervention.
Our results are robust to various modelling specifications and have
important policy implications.
Keywords: banking; capital; adjustment; ownership; China; (follow links to similar papers)
JEL-Codes: C32; G21; G28; (follow links to similar papers)
41 pages, September 15, 2014
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