Foreign Bank Entry and Stock Market Stability: Insights from Staggered Regulatory Changes

55 Pages Posted: 6 Sep 2019 Last revised: 14 Nov 2019

See all articles by Tse-Chun Lin

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Jinyu Liu

University of International Business and Economics (UIBE) - School of Banking and Finance

Xiaoran Ni

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE); Xiamen University - School of Economics

Date Written: November 10, 2019

Abstract

Exploring staggered quasi-exogenous regulatory changes in China, we find that banking sector FDI significantly reduces the likelihood of stock price crashes of domestic listed firms. The effect is more pronounced among firms with ex-ante lower information quality and worse performances, which is supportive of a monitoring spillover effect of foreign bank penetration on the domestic firms. Moreover, we find evidence of reduced overall financing costs and extended loan maturity after foreign bank entry. Our findings highlight an unexplored role of the banking sector marketization in terms of curtailing stock price crash risks and improving the stability of stock market.

Keywords: Foreign Bank Entry; Stock Market Stability; Stock Price Crash; Regulatory Change; Information Quality; Monitoring Spillover Effect

JEL Classification: G38; G34; G14; M41

Suggested Citation

Lin, Tse-Chun and Liu, Jinyu and Ni, Xiaoran, Foreign Bank Entry and Stock Market Stability: Insights from Staggered Regulatory Changes (November 10, 2019). Available at SSRN: https://ssrn.com/abstract=3445520 or http://dx.doi.org/10.2139/ssrn.3445520

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Jinyu Liu (Contact Author)

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street, Chaoyang District
Beijing, 100029
China
+8613720001753 (Phone)

HOME PAGE: http://sbf.uibe.edu.cn/szdw/xyjs/zc/57847.htm

Xiaoran Ni

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

D 204, Economics Building
Xiamen, Fujian 361005
China

Xiamen University - School of Economics ( email )

China

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