The Impact Of Economic Policy Uncertainty On Bank Stability And The Moderating Effect Of Ownership Structure: Empirical Evidence From Chinese Listed Commercial Banks

Abstract

This research delves into the intricate connection between Economic Policy Uncertainty (EPU) and the stability of Chinese-listed commercial banks during the period spanning from 2018 to 2022. Utilizing regression analyses, the study examines how the Chinese EPU index, derived from Huang and Luk (2020), impacts bank stability, considering the moderating effects of ownership structure. With a focus on 137 observations across 42 listed banks, the study employs the Random Effects Model (REM) to analyze financial data, revealing a notable positive correlation between Chinese EPU and bank stability. This finding diverges from prior research, possibly due to the tailored nature of the Chinese EPU index and the unique dynamics of Chinese banks. In addition, the study explores the moderating effects of ownership structure on the EPU-bank stability relationship. However, no significant moderating effects are observed, indicating a uniform regulatory environment across ownership structures. Noteworthy control variables such as liquidity ratio, inflation rate, and bank size are found to significantly impact bank stability, providing nuanced insights into the complexities of banking operations amidst policy uncertainty. Despite contributing valuable insights, the study acknowledges limitations including data scope and study period, highlighting avenues for future research. Recommendations are offered for policymakers, bank managers, and researchers, aiming to inform strategic decision-making and guide future investigations into this critical area of study.