This study attempts to reconcile the conflicting theoretical predictions regarding how government ownership affects bank capital behaviour. Using a unique Chinese bank dataset over 2006–2015 we find that government-owned banks have higher target capital ratios and adjust these ratios faster compared to private banks, supporting the ‘development/political’ view of the government's role in banking. This effect is stronger for local government-owned and state enterprise-owned banks than for central government-owned banks. We also find that undercapitalized government-owned banks increase equity while undercapitalized foreign banks contract assets and liabilities as their respective main strategy to adjust their capital ratios.
Jiang, C., Liu, H., & Molyneux, P. (2019). Do different forms of government ownership matter for bank capital behavior? Evidence from China. Journal of Financial Stability, 40, 38–49. https://doi.org/10.1016/j.jfs.2018.11.005