Journal of Financial Services Research

, Volume 38, Issue 2, pp 159–186

Information Disclosure, Market Discipline and the Management of Bank Capital: Evidence from the Chinese Financial Sector

Article

DOI: 10.1007/s10693-010-0091-6

Cite this article as:
Wu, Y. & Bowe, M. J Financ Serv Res (2010) 38: 159. doi:10.1007/s10693-010-0091-6
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Abstract

Is there evidence that market forces effectively discipline risk management behaviour within Chinese financial institutions? This study analyses information from a comprehensive sample of Chinese banks over the 1998–2008 period. Market discipline is captured through the impact of four sets of factors namely, market concentration, interbank deposits, information disclosure, and ownership structure. We find some evidence of a market disciplining effect in that: (i) higher (lower) levels of market concentration lead banks to operate with a lower (higher) capital buffer; (ii) joint-equity banks that disclose more information to the public maintain larger capital ratios; (iii) full state ownership reduces the sensitivity of changes in a bank’s capital buffer to its level of risk;(iv) banks that release more transparent financial information hold more capital against their non-performing loans.

Keywords

Market disciplineCapitalRisk managementChinese banking

JEL Classification

G21G28

Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Queen’s University Management SchoolQueen’s University BelfastBelfastUK
  2. 2.Manchester Business SchoolUniversity of ManchesterManchesterUK