The marginal effects of government ownership on individual bank risk and systemic risk: Evidence from China

We estimate the marginal effects of government ownership on individual bank risk and systemic risk using a panel dataset of 17 major Chinese banks for the period from 2007 to 2022. After controlling for size as well as bank and time fixed effects and considering the endogeneity of the ratio of government ownership, we find that while that ratio has a positive effect on individual bank risk in terms of value-at-risk (VaR) and credit ratings that omit the influence of government support, it has a negative effect on systemic risk in terms of losses and capital shortfall during a financial crisis (MES and SRISK). These results indicate that banks with larger government ownership take more risk and that investors anticipate bailouts of these banks during a financial crisis.