Impacts of capital regulation and market discipline on capital ratio selection: evidence from China

Abstract

Purpose – The purpose of this paper is to examine the impacts of capital regulation and market discipline when China imposed most of the Basel I requirements between 2004 and 2010. Design/methodology/approach – Following Barrios and Blanco (2003) and Rime (2001), the authors apply disequilibrium and simultaneous measurements to identify the financial safety net underlying capital movements as well as the changes in credit risk levels in China’s banking sector. Findings – The authors discover that capital regulation outweighs market discipline by an average probability of 0.65-0.35 in the contribution to bank capital movements when banks significantly improve their capital buffers. In addition, the banking sector lowered its risk levels in the sample period. Research limitations/implications – The findings suggest that the largest bank-based economy has consolidated its financial system for future expansion. Originality/value – China’s banking sector requires closer examination of capital and risks provided by its emerging significance in the financial world. Thus, this study contributes to current literature.

The impact of supply chain finance on firm cash holdings: Evidence from China

“…Our finding, that SCF significantly improves capital efficiency, is in conformity with that by Lamoureux and Evans (2011) and Ali et al (2019) . Given the outstanding financial constraints among SMEs and private firms in China ( Xu et al, 2015 ; He et al, 2019 ), such a contribution by SCF may fundamentally change the firm's competitive position in the market.…”

“…In the largest bank-based economy, the relationship with banks may also contribute to the firm's resources ( Levine, 2002 ; Fu et al, 2015 ; Xu et al, 2015 ). A good relationship with banks may also be significant towards SCF.…”

“…Innovative financial solutions within the core firm may also contribute to increased commission fees for the banks besides better risk management of loans to the supply chain. Such a new relationship with firms in the supply chain may be preferred by the fast expanding Chinese banks since the GFC, as they previously competed against each other with similar products and services ( Allen et al, 2005 ; Xu and Lin, 2007 ; Xu et al, 2015 ). In addition, since interest income is the most important source of income for Chinese banks, there may be incentives for them to push their lending to the core firm in SCF.…”

“…Often with better access to bank loans and enjoying more commercial credit, a core firm in SCF can share its financial resources with other firms in the supply chain or provide guarantees to facilitate small and medium-sized enterprises (SMEs) to borrow bank loans. Given the outstanding lending preference towards state-owned enterprises (SOEs) ( Xu and Lin, 2007 ; Fu et al, 2015 ; Xu et al, 2015 ), and the traditional bias against either SMEs or those of private ownership ( Allen et al, 2005 ; He et al, 2019 ; Li et al, 2020a ; Li et al, 2020b ; Wu and Xu, 2020 ), SCF has been growing rapidly in the largest bank-based economy ( Lin and Zhang, 2020 ; Song et al, 2020 ).…”

Analysis Of The Factors That Influence Islamic Bank Capital Buffers In Indonesia

“…Operating Expenses Operating Income (BOPO) to measure operational risk (Agustuty & Ruslan, 2019;Sutrisno, 2018), Net Rewards (NI) to measure market risk (Prasetyoko and Seodarmono, 2015 ;Sutrisno, 2018). And third party funds or deposits (Xu et al, 2015;Zhu & Chen, 2016).…”