Study On Effects Of Subordinated Debt On Risk-taking Of Chinese Listed Commercial Banks

Since Industrial Bank issued the first subordinated debt at the end of 2003, the subordinated debt market has developed rapidly in China and the issuing scale has been expanded gradually. Issuing subordinated debts has become one of the main raising capital ways for Chinese commercial banks. In mature capital market, subordinated debts can increase bank capital adequacy ratio in the short term, strengthen self-management ability of commercial banks, and improve the information disclosure system of banks. However,in Chinese current situation, improving capital adequacy ratio through issuing subordinated debts has become the main or even the only purpose of commercial banks. Foreign academics have made some research on the impact of subordinated debt on bank risk-taking, and have also obtained many different conclusions.Under the current situation of Chinese banking and capital market, the actual impact of the subordinated debt on the risk-taking of commercial banks need to be further inspected. This paper aims to make empirical analysis on the relationship between the subordinated debts and risk-taking of banks by using data of issuing subordinated debts and the bank annual report data. It is expected to draw some useful conclusions which can provide reference value for banks’ operating decisions in the future.Firstly, this article analyzes the current situation of the development of the subordinated debts in our country, and expounds the mechanism that subordinated debt gives play to the role of market discipline. Secondly, we select Z-score as the measure index for bank risk-taking, and use the methods of statistical analysis and cross sectional data model to respectively test the affect of subordinated debt on risk-taking of 16 listed banks, risk-taking of state-owned and non-state-owned bank. Then this paper examines the effect of subordinated debt changing over time. Finally, we empirically test the influence of subordinated debt on bank risk taking under the condition of capital supervision and regulation and the change of this influence over time. The results show that the subordinated debt interest spread has a negative impact on listed banks risk-taking, the scale of subordinated debt has a positive influence on risk-bearing, and the period of subordinated debt negatively affects banks risk-taking. Impacts about the spreads,scale and period of subordinated debts on state-owned bank risk exposures are not significant,and impacts about subordinated debt spreads, period on non-state owned bank risk-taking are significant negative. With time segment data, it is found that the effect subordinated debt takes on bank risk-taking became significant from 2010. Under regulation of capital,subordinated debt spreads, scale and period always have no significant effect on risk-taking of banks with high capital adequacy ratio, and these factors of subordinated debts began to have significant influence on risk-taking of banks under-capital from 2009.On the basis of above conclusions, this paper puts forward countermeasures and suggestions on how to scientifically issue subordinated debt, and promote the healthy and stable development of subordinated debt market.