Economic Policy Uncertainty and Financial Innovation: Evidence from Commercial Bank in China

Abstract

The empirical results show that the rise of economic policy uncertainty (EPU) makes the level of financial innovation at banks significantly improve; that is, there is an incentive effect of EPU on financial innovation at banks. In addition, the degree of incentive-induced EPU for different types of banks is significantly different. Compared with listed banks, this incentive effect is more significant for non-listed banks; rural commercial banks are the most significant incentive, followed by urban commercial banks, and state-owned banks and joint-stock commercial banks are more robust. This shows that EPU has a selective effect on bank financial innovation. Moreover, the incentive effect of EPU on financial innovation activities is affected by the return on assets and the asset liquidity ratio of commercial banks, which further validates the selective effect of financial policy uncertainty on bank financial innovation.