Risk-taking behavior and bank charter value of listed banks: An empirical study in China Yanping Li, Liyan Han School of Economics & management, Beihang University,Beijing,100083,China

Introduction Identifying and measuring banks’ risk- taking behaviors are crucial to build finance safety nets. Risk-taking behaviors exhibit mainly in banks’ moral hazard in their asset portfolio. Bank charter value is the most important element lured banks into excessive adventure.

Related literature Bank charter value rests with the market power （ Keeley ， 1990 ）, reputation （ Boot and Greenhaum ， 1993 ） as well as the relationship between banks and their clients （ Besanko and Thakor ， 1993) Merton(1977) discovers the relationship between deposit insurance and a put option （ Marcus ， 1984 ； Furlong and Keeley ， 1989 ； Keeley,1990 ） Many studies have tested the regulation effects (Kahane,1977;Bhattacharya and Thakor ， 1993; Buser et al,1981; Sangkyun Park,1997) Some studies are involved in the mechanism of bank charter value acting on bank risk-taking behaviors(Dewatripont and Tirole,1993; Dale and Lee,2001;Barth et al.2001 ， 2004; Francisco. Gonzalez,2005 )

Data, variables and methodology Data source: CSMAR series data base supplied by Shenzhen GTA information and technology limited company. Samples: all the five listed banks in china stock exchange. Time: from 1999 to 2005

Variables

Model The initial model is set as following: The final model form is set as following:

Empirical results

Conclusions L/TA and LNA have negative relationship with bank charter value. The subtractive coefficient of L/TA suggests that the riskier the banks are, the lower their charter values are, and vice versa. The relationship between bank size and charter value is a quadratic equation and its form should be U-shaped. The action of L/E and L/TA on banking operations varies across the time and they have the identical impact on all the five banks at a certain time. Different listed time results in the different regression result between Huaxia bank and other banks.

Summary and policy implication We find that the relationship between bank asset and charter value is a quadratic equation and its form should be U-shaped. We expect the government to retreat from the economy from many fields since bank charter value can not represent the bank’s market reputation and its future prospect completely. Expanding the banks by increasing their asset is a viable means of strengthening their ability to fight back risk.

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