Abstract
Internet finance has grown rapidly in China over the past years. Through introducing internet finance’s “reducing management cost” and “raising capital cost” effects into bank risk-taking model, this paper systematically investigates the dynamic and heterogeneous influence of internet finance on China commercial banks’ risk-taking. Using internet finance index based on “text mining” and data of 36 commercial banks from 2003 to 2013, we makes an SYS-GMM test. The results show, firstly, the impact of internet finance on China commercial banks’ risk-taking is a “U” trend. The initial development of internet finance can help commercial banks to reduce management cost and risk-taking, but then internet finance will raise capital cost, and turn to exacerbate banks’ risk-taking. Secondly, the response of China commercial banks’ risk-taking is heterogeneous. Large commercial banks’ response is slow, while small and medium banks’ response is relatively sensitive. The conclusion showed the complexity of the implication mechanism and functional process of how internet finance affected China commercial banks’ risk-taking.
Highlights
Internet finance has grown rapidly in China over the past years
The conclusion showed the complexity of the implication mechanism and functional process of how internet finance affected China commercial banks’ risk-taking
Proposition 1: Viewed from the dynamic evolution standpoint, Internet finance had a “U”-shaped trend impact on the risk taking of commercial banks; in other words, Internet finance was, in its infancy, conducive to commercial banks to cut down management cost and reduce risks they shouldered, but Internet finance would raise capital cost and the risk taking for commercial banks
Summary
Internet finance has grown rapidly in China over the past years. Over the past 2 years, in particular, Internet finance has emerged as the “blue ocean” enjoying tremendous development where numerous virtual and real enterprises vied to swim into that area. On July 18, 2015, the Guideline on Promoting the Healthy Development of Internet Finance (hereinafter referred to as the Guideline) was jointly issued by 10 ministries and departments including the People’s Bank of China. Guo and Shen China Finance and Economic Review (2016) 4:16 commercial banking. Against this background, the ever increasing importance has been attached to the discussion on the relation between Internet finance and commercial banks
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