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Financial inclusion and bank risk-taking nexus: evidence from China

Muhammad Umar (School of Economics and Management, East China Jiao Tong University, Nanchang, China)
Muhammad Akhtar (FAST School of Management, National University of Computer and Emerging Sciences, Islamabad, Pakistan)

China Finance Review International

ISSN: 2044-1398

Article publication date: 26 October 2021

338

Abstract

Purpose

This study aims to investigate the relationship between financial inclusion and risk-taking by Chinese banks.

Design/methodology/approach

It uses the panel data from Chinese banks ranging from 2011 to 2019 and applies system generalized method of moments to measure coefficients. To get in-depth understanding of the relationship between above-mentioned variables, the analysis for commercial, cooperative, listed, unlisted, small and large banks has been done. Financial inclusion index has been measured based on demographic and geographic aspects by using the principal component analysis, and bank risk-taking has been proxied by z-score.

Findings

The findings reveal an inverse relationship between financial inclusion and bank risk-taking which implies that an increase in financial inclusion results in lesser risk for the banks, i.e. diversification hypothesis applies. However, the results for unlisted and large banks show a different story where an increase in financial inclusion results in higher bank risk and vice versa.

Originality/value

The present study offers several valid and convincing implications for consumers, policymakers and banking sector regulators.

Keywords

Citation

Umar, M. and Akhtar, M. (2021), "Financial inclusion and bank risk-taking nexus: evidence from China", China Finance Review International, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/CFRI-08-2021-0174

Publisher

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Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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