Abstract
This study aims to measure the contribution of banks, financial services institutions, and insurance companies to China’s systemic risk during the 2004–2018 period. This study also evaluates the effect of CEO (chief executive officer) overconfidence and firm-level factors on systemic risk. We employ ΔCoVaR (delta conditional value-at-risk) as a measure of systemic risk and earnings forecast bias to measure CEO overconfidence. We use a fixed effects panel regression approach to evaluate the effect of CEO overconfidence, firm-level factors, and systemic risk. Our findings show that banks that are managed by overconfident CEOs enhance the firm’s contributions to systemic risk. Empirical results also show that the firm’s size, leverage ratio, and loan ratio increase the firm’s contributions to systemic risk. Furthermore, return on assets is found to have an inverse relation with systemic risk. The results of this study are important for constructing financial regulations and policies to mitigate the impact of these factors on systemic risk in China.
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