Information Disclosure and Bank Risk‐Taking under a Partially Implicit Deposit Insurance System: Evidence from China

In: The Australian economic review, Volume 48, Issue 2, p. 163-176

Abstract

AbstractThis article examines the role of information disclosure on bank risk‐taking behaviour in China. The study uses a game theory model to analyse the interaction mechanism between bank risk‐taking behaviour and its information disclosure under China's partially implicit deposit insurance system. It is found that banks that are more likely to receive a government bailout when they are in trouble tend to take excessive risk. In addition, the implicit guarantee weakens the market‐monitoring effect of information disclosure. Using data from 60 commercial banks in China, we find strong empirical support for our findings.