The Empirical Research Of Risk Taking In Banking

To explicate the causes of the financial crisis and the instability of the banking system, we analyze the factors affecting the risk taking in the banking industry. Under theoretical analysis, we use data from the annual and semiannual reports of the five listed banks in China, to examine the determinants of risk taking in commercial banks. We use the following 11 factors—the capital adequacy ratio, the franchise value, the bank size, the concentration ratio of loans, return on equity, the controlling power of large shareholders, the board's size, the ratio of the independent directors in the board, the salary of the advanced managers and the managerial ownership—as the explanatory variables, and we take the ratio of the non-performing loans and the risks in the capital market as the proxy variables of bank risks and the explained variables. We find that franchise value, bank size, the controlling power of the large shareholders and the managerial ownership are affecting the risk taking in banks significantly. The decline of franchise value or bank size increases the bank risks and the increase of the controlling power of the large shareholders or the managerial ownership declines the bank risks.