Bank Capital, Adjustment and Ownership: Evidence from China

41 Pages Posted: 14 Oct 2014

See all articles by Philip Molyneux

Philip Molyneux

University of Sharjah; University of Sharjah - College of Business Administration

Hong Liu

Loughborough University - School of Business and Economics

Chunxia Jiang

University of Aberdeen

Multiple version iconThere are 2 versions of this paper

Date Written: September 15, 2014

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

JEL Classification: G21, G28, C32

Suggested Citation

Molyneux, Philip and Molyneux, Philip and Liu, Hong and Jiang, Chunxia, Bank Capital, Adjustment and Ownership: Evidence from China (September 15, 2014). BOFIT Discussion Paper No. 16/2014, Available at SSRN: https://ssrn.com/abstract=2509295 or http://dx.doi.org/10.2139/ssrn.2509295

Philip Molyneux

University of Sharjah ( email )

College of Business Administration
University of Sharjah
Sharjah, Sharjah
United Arab Emirates

HOME PAGE: http://www.sharjah.ac.ae/en/academics/Colleges/business/Pages/ppl_detail.aspx?mcid=1

University of Sharjah - College of Business Administration ( email )

University City Road
Sharjah, 27272
United Arab Emirates

Hong Liu

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leics LE11 3TU
Leicestershire
United Kingdom

Chunxia Jiang (Contact Author)

University of Aberdeen ( email )

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

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