Study On Risk-taking Behavior Of Banking

We bring forward a systemic research framework for the risk-taking behavior of banking in China from corporate governance perspective after reviewing the related literatures on corporate governance and risk-taking behavior of banking. We start from the risk preference of different participants in the bank, and get an optimal risk-taking level. On that basis, we analyze how the corporate governance mechanism influences the bank risk-taking. Our study shows that the state-owned large shareholders can restrict the risk-taking behavior of banks, so when we reform property right, we must combine performance and risk to consider together. The independent directors possibly encourage the risk-taking incentive of banks. The salary of the advanced managers can restrict the risk-taking behavior of banks. But as the managerial ownership become popular, the managers have risk-taking incentive. As for the market discipline, we take the subordinated debt as an example. The function of the subordinated debt in the bank is not only the supplement of the corn capital, but also the constraints management about banks' risk behavior. This fact is not a debate anymore. This paper is to set up a simple model to prove that the subordinated debt indeed can take constraints function in the bank. And then we evaluate the risk spread relationship in the domestic commercial banks from 2003 to 2009. Our empirical results indicate that subordinated debt has function to the issuance banks other than the non-issuance banks. Our results suggest that the degree of market discipline would likely be enhanced by a mandatory subordinated debt program.The paper extensively applies many kinds of theoretic approaches and technical tools to systematically study the risk-taking behavior of banking in China from corporate governance perspective through the manner of mathematical modeling and positive modeling. The structure of paper is arranged as followed: Chapter 1 is an introduction. In this part, we review the related literatures on corporate governance and risk-taking behavior of banking. Chapter 2 is the theoretical analysis of the risk-taking behavior of bank. Chapter 3 is the empirical research of how the internal corporate governance influences the risk-taking of banks. Chapter 4 is the theoretical analysis of the outcome. Chapter 5 is the analysis of the influence of external corporate governance. Chapter 6 is the conclusion and suggestion.The primary innovations of the dissertation are as follows:(1) study the different functional mechanisms on the risk-taking behavior of banking; (2) study the relationship and relevant mechanism between market discipline and government supervision and risk-taking behavior of banking; (3)study how to enhance market discipline by introducing subordinated debts, and the relevant functional mechanism of market discipline of subordinated debts.