In this paper, we study the relationship between government ownership and bank risk. Two different variables are generated using the Chinese commercial banks' data from the year 2000 to 2011. One variable is z-risk which indicates the risk of insolvency based on the banks' operating performance, and the other one is Moody's financial strength ratings which measures the operation risk of individual bank. Data support that government ownership increases commercial banks' operation risk, either in terms of solvency margin or financial strength ratings. The results also indicate that larger banks have lower operation risk than smaller commercial banks. However, our empirical evidence shows that economic growth has negative impact on the operation risk of commercial banks even after controlling year-specific effect. It is surprising that foreign-owned banks have higher operation risk than local banks.
MSc in Finance Project - Simon Fraser University
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