Shadow price of equity and political connectedness: A study of Chinese commercial banks |
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| Institution: | 1. Faculty of Business, City University of Macau, Macau, China;2. School of Business, Macau University of Science and Technology, Macau, China;1. Department of Mathematics and School of Economics and Management, University of Bologna, Bologna, Italy;2. Department of Economics, Society and Politics, University of Urbino Carlo Bo, Italy;3. Department of Economics, University of Bamberg, Germany;1. Department of Accountancy and Finance at University of Antwerp, Stadscampus Prinsstraat 13 S.B.329, 2000 Antwerpen, Belgium;2. College of Business, University of Akron, Akron, OH, USA;3. School of Accounting and Finance, University of Vaasa, Wolffintie 34, 65200 Vaasa, Finland;4. Department of Data Science, Economics and Finance at EDHEC Business School, 24 avenue Gustave Delory, 59057 Roubaix Cedex 1, France;1. School of Accounting, Zhongnan University of Economics and Law, 182 Nanhu Avenue, Wuhan, China;3. School of Accountancy, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai, China;4. Research Center of Finance, Shanghai Business School, 123 Fengpu Avenue, Shanghai, China |
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| Abstract: | This study estimates the shadow price of equity capital applying a directional distance function for Chinese commercial banks. Using an unbalanced panel of 746 observations from 2013 to 2019, we find that the average shadow price of equity in the Chinese banking system is 2.94%. Moreover, in our sample, the price of equity of most banks is lower than that of deposits, suggesting that the majority of sampled banks are underleveraged during the study period. We also find that politically connected banks have higher prices of equity than their non-politically connected counterparts, and that the price of equity is positively related to ownership concentration. Furthermore, large politically related banks tend to have lower shadow prices of equity than large non-politically related banks, although large banks usually have higher prices of equity than small banks. |
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