Politicians' Promotion Incentives and Bank Risk Exposure in China

54 Pages Posted: 20 Jun 2015

See all articles by Li Wang

Li Wang

Fudan University - The Center for Pediatric Liver Diseases

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin - Faculty of Economics

Michael Schröder

ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management

Xian Xu

Fudan University - School of Economics

Date Written: April 2015

Abstract

This paper shows that politicians’ pressure to climb the career ladder increases bank risk exposure in their region. Chinese local politicians are set growth targets in their region that are relative to each other. Growth is stimulated by debt-financed programs which are mainly financed via bank loans. The stronger the performance incentive the riskier the respective local bank exposure becomes. This effect holds primarily for local banks which are under a certain degree of control of local politicians and it has increased with the release of recent stimulus packages requiring local co-financing.

Keywords: Bank Lending; Bank Risk Exposure; Local Politicians; Promotion Incentives

JEL Classification: G21; G23; H74

Suggested Citation

Wang, Li and Menkhoff, Lukas and Schröder, Michael and Xu, Xian, Politicians' Promotion Incentives and Bank Risk Exposure in China (April 2015). ZEW - Centre for European Economic Research Discussion Paper No. 15-026. Available at SSRN: https://ssrn.com/abstract=2620662 or http://dx.doi.org/10.2139/ssrn.2620662

Li Wang

Fudan University - The Center for Pediatric Liver Diseases ( email )

China

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

Michael Schröder (Contact Author)

ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management ( email )

L 7,1
P.O. Box 10 34 43
D-68034 Mannheim
Germany
+49 621 1235 368 (Phone)
+49 621 1235 223 (Fax)

HOME PAGE: http://www.zew.de/en/team/msc/?cHash=c9507802336d8f7db96848c539ed2f89

Xian Xu

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

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