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
E-mail address:[email protected]
Introduction
Identifying and measuring banks’ risktaking 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.
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Related literature
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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
a l , 1 9 8 1 ; S a n g k y u n P a r k , 1 9 9 7 )
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
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The initial model is set as following:
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The final model form is set as following:
Empirical results
Conclusions
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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
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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.
References
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