Liquidity creation and bank capital structure in China |
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Authors: | Adrian CH Lei Zhuoyun Song |
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Institution: | Faculty of Business Administration, University of Macau, Macau;Faculty of Business Administration, University of Macau, Macau |
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Abstract: | This paper investigates the relationship between liquidity creation and bank capital structure in China. We test the so-called “financial fragility-crowding out” hypothesis and the “risk absorption” hypothesis on Chinese banks and find that bank capital is negatively related to liquidity creation, which supports the financial fragility-crowding out hypothesis. In contrast, we find that foreign banks in China have a weaker relationship between liquidity creation and bank capital, which is consistent with the risk absorption hypothesis and findings in prior studies. |
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