Local official turnover and bank risk-taking: Evidence from China

Abstract

This study investigates the impact of turnover among local government officials on the risk-taking of local commercial banks in China. Our findings reveal a positive relationship between official turnover and risk-taking in banks. The observed effect is mainly due to a deterioration in credit allocation and heightened competition among banks. Heterogeneous analysis indicates that the impact is more significant in non-election years, in years of enhanced anti-corruption efforts, in regions with poor credit environments, and among smaller banks or banks without political connections. Additionally, compared to normal and local turnover, the positive impact of local official turnover on banks' risk-taking is more pronounced for abnormal and non-local turnovers. These insights deepen our understanding of the economic consequences of official turnover on commercial banks and offer valuable perspectives for banks' risk management strategies.