How Do Short-Term Cross-Border Capital Flows Affect Bank Risk-Taking? Evidence from China

ABSTRACT

This study examines the impact of short-term cross-border capital flows on banks’ risk-taking using panel quarterly data from all 37 A-share listed commercial banks in China. We demonstrate that short-term cross-border capital flows increase both ex ante and ex post risk-taking by banks. The impact of short-term cross-border capital flows upon banks’ ex ante and ex post risk-taking is heterogeneous across different kinds of commercial banks and at different phases of the financial cycle. Besides, short-term cross-border capital flows exhibit a non-linear effect on banks’ ex ante risk-taking and ex post risk-taking with changes in capital account openness.

KEYWORDS:

• Short-term cross-border capital flows
• bank risk-taking
• financial cycle
• capital account openness
• Chinese A-share listed commercial banks

JEL:

• F32
• G01
• G21

Acknowledgments

We would like to thank the Editor-in-Chief and Subject Editor of the journal Emerging Markets Finance and Trade for their suggestions on the article, and the reviewers for the journal Emerging Markets Finance and Trade for their comments.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This research was funded by the Humanities and Social Science Planning Fund of the Ministry of Education of China [No. 19YJA790040] and the Xinjiang Social Science Foundation Project [No. 19BJL028].