HOW DOES RISK MANAGEMENT AFFECT FINANCIAL PERFORMANCE? EVIDENCE FROM CHINESE LISTED COMMERCIAL BANKS

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Abstract

An increasing number of commercial banks in China began to pay attention to comprehensive risk management after the global financial crisis. With the accelerated pace at which China’s commercial banks are expanding abroad, establishing a comprehensive risk management system appropriate for the international financial market has become a critical hurdle for these banks’ further development. This paper explores the impact of risk management on the financial performance of listed banks in China, comparing state-owned banks and non-state-owned banks, by establishing multiple linear regression analysis models. The results reveal a significant impact on the financial performance of state-owned commercial banks, such as on insolvency risk index, loan-to-deposit ratio, nonperforming loan ratio, and bank size. Insolvency risk index and bank size are found to positively impact state-owned commercial banks’ financial performance. For non-state-owned banks, capital adequacy ratio, nonperforming loan ratio, and bank size have significantly impact financial performance, with bank size positively influencing financial performance.

Keywords: Commercial Bank, China, Risk Management, Financial Performance

Authors’ individual contribution: Conceptualization – P.H. and G. C.C.; Methodology – G.-C.C.; Software – G.-C.C.; Validation – G. C.C.; Investigation – P.H.; Resources – P.H., R.-H.H., S.T., and G. C.C.; Data Curation – G.-C.C. and P.H.; Writing – Original Draft – P.H. and G.-C.C.; Writing – Review and Editing – R.-H.H., S.T., and G. C.C.; Supervision – G.-C.C. and R.-H.H.

JEL Classification: C32, G010, G21, G24

Acknowledgement: This research is not funded by any organization.

Received: 20.08.2019
Accepted: 15.10.2019
Published online: 04.11.2019

How to cite this paper: Chen, G.-C., Tsao, S., Hsieh, R.-H., & Hu, P. (2019). How does risk management affect financial performance? Evidence from Chinese listed commercial banks. Risk Governance and Control: Financial Markets & Institutions, 9(4), 20-29.
https://doi.org/10.22495/rgcv9i4p2