Is it profitable to avoid regulation?

: evidence from the chinese banks shadow

Abstract

The present Dissertation empirically investigates the influence of avoiding regulation, through the engagement in shadow banking activities, on Chinese commercial banks’ profitability. In order to address this relation, this research focuses its analysis on the set of shadow operations conducted by Chinese commercial banks, which constitutes the major component of shadow banking in China. In fact, the sample used comprises 17 Chinese listed commercial banks, ensuring that the banking institutions mostly engaged in shadow operations - state-owned and joint-stock commercial banks - are represented. Moreover, to examine the period where Chinese shadow banking activities most developed, the sample refers to the years ranging from 2010 to 2018. The present Dissertation employs a fixed-effect model that includes the variable ‘Banks’ Shadow’ - which represents the size of shadow activities conducted by banks - along with bank-specific and macroeconomic controls. In addition, robustness checks are implemented to ensure the validity of the empirical results. The baseline findings suggest that banks’ engagement in shadow operations negatively impacts their profitability. The fact that conducting shadow banking activities is associated with higher levels of credit risk might constitute the main driver of this result.

Date of Award	29 Jan 2021
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Diptes Prabhudas (Supervisor)