Top

Economic Change and Restructuring

Published in:

01-04-2024

Does climate policy uncertainty matter for bank value?

Authors: Mengting Fan, Zan Mo, Huijian Fu, Tsung-Hsien Wu, Zili Chen, Yue He

Published in: Economic Change and Restructuring | Issue 2/2024

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

We examine whether and how climate policy uncertainty (CPU) affects bank value. Based on a sample of Chinese listed banks, we find that CPU is negatively associated with bank value, irrespective of bank type and bank size. Moreover, the increased CPU exacerbates the negative effects on bank value of the ratio of non-performing loans to total loans (NPL), operational efficiency (OE), and leverage ratio (LEV), suggesting that NPL, OE, and LEV are possible channels through which CPU harms bank value. The policy implication is that bank equity investors need to take the impact of CPU into account when deciding their investment portfolios while bankers and regulators need to improve some key financial indicators to reduce the negative impact of CPU.

previous article Paths to sustainable development in China: why green finance and green technology matter?

next article Policies to obtain energy transformation target: evidence from emission accounting impacts

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

For instance, Ren et al. (2022) find that CPU significantly reduces total factor productivity at the firm level, so worsening the economic situation in China.

https://www.ndrc.gov.cn/xxgk/zcfb/tz/202202/t20220210_1314511.html: China**’s National Development and Reform Commission (NDRC) issued “Opinions of the National Energy Administration on Improving Institutional Mechanisms and Policy Measures for Green and Low Carbon Energy Transition”.

According to the Hausman test result, we select the individual fixed-effect model. We report the results in brevity. Details are available upon request.

Tobin’s Q is the ratio of a company’s market value to the replacement cost of its assets. In theory, Tobin’s Q represents an investor’s judgment of a company’s value, and it is an indicator of a company’s future, risk-adjusted earnings, which is more reliable than managerially manipulated accounting indicators (Montgomery and Wernerfelt 1988).

The specific data source can be found at http://www.policyuncertainty.com/climate_uncertainty.html.

Regional economic variables are used to control for the level of economic development in the bank’s main areas of operational activity and include the regional economic growth rate (G_gdp). As listed commercial banks operate on a national basis, we use the overall national GDP growth.

Adesina KS (2021) How diversification affects bank performance: the role of human capital. Econ Model 94:303–319

Afanasyeva E, Güntner J (2020) Bank market power and the risk channel of monetary policy. J Monet Econ 111:118–134

Angbazo L (1997) Commercial bank net interest margins, default risk, interest-rate risk, and off-balance sheet banking. J Bank Finance 21(1):55–87

Apergis N, Lau MCK (2015) Structural breaks and electricity prices: further evidence on the role of climate policy uncertainties in the Australian electricity market. Energy Econ 52:176–182

Arias J, Maquieira C, Jara M (2020) Do legal and institutional environments matter for banking system performance? Econ Res-Ekonomska Istraživanja 33(1):2203–2228

Barth JR, Lin C, Ma Y, Seade J, Song FM (2013) Do bank regulation, supervision and monitoring enhance or impede bank efficiency? J Bank Finance 37(8):2879–2892

Battiston S, Dafermos Y, Monasterolo I (2021) Climate risks and financial stability. J Financ Stab 54:100867

Beck T, Chen T, Lin C, Song FM (2016) Financial innovation: the bright and the dark sides. J Bank Finance 72:28–51

Berger AN, Black LK (2011) Bank size, lending technologies, and small business finance. J Bank Finance 35(3):724–735

Berger AN, Rosen RJ, Udell GF (2007) Does market size structure affect competition? The case of small business lending. J Bank Finance 31(1):11–33

Berger AN, Hasan I, Zhou M (2009) Bank ownership and efficiency in China: what will happen in the world’s largest nation? J Bank Finance 33(1):113–130

Blyth W, Bradley R, Bunn D, Clarke C, Wilson T, Yang M (2007) Investment risks under uncertain climate change policy. Energy Policy 35(11):5766–5773

Bollen KA, Kirby JB, Curran PJ, Paxton PM, Chen F (2007) Latent variable models under misspecification: two-stage least squares (2SLS) and maximum likelihood (ML) estimators. Sociol Methods Res 36(1):48–86

Caby J, Ziane Y, Lamarque E (2020) The determinants of voluntary climate change disclosure commitment and quality in the banking industry. Technol Forecast Soc Chang 161:120282

Campiglio E, Dafermos Y, Monnin P, Ryan-Collins J, Schotten G, Tanaka M (2018) Climate change challenges for central banks and financial regulators. Nat Clim Chang 8(6):462–468

Carney M (2015) Breaking the tragedy of the horizon-climate change and financial stability. Speech given at Lloyd’s of London 29:220–230

Casu B, Clare A, Sarkisyan A, Thomas S (2013) Securitization and bank performance. J Money Credit Bank 45(8):1617–1658

Chen Y-L, Ting H-I, Wang M-C (2021) Government support and bank performance during the 2007–2008 financial crisis. North Am J Econ Fin 55:101301

Chen Z, Zhang L, Weng C (2023) Does climate policy uncertainty affect Chinese stock market volatility? Int Rev Econ Financ 84:369–381

Chenet H, Ryan-Collins J, Van Lerven F (2021) Finance, climate-change and radical uncertainty: towards a precautionary approach to financial policy. Ecol Econ 183:106957

Chernykh L, Cole RA (2015) How should we measure bank capital adequacy for triggering Prompt Corrective Action? A (simple) proposal. J Financ Stab 20:131–143

Chiu Y-B, Lee C-C (2020) Effects of financial development on energy consumption: the role of country risks. Energy Econ 90:104833

Chortareas GE, Girardone C, Ventouri A (2013) Financial freedom and bank efficiency: evidence from the European Union. J Bank Finance 37(4):1223–1231

Cole RA, Damm J (2020) How did the financial crisis affect small-business lending in the United States? J Financ Res 43(4):767–820

Cole RA, Moshirian F, Wu Q (2008) Bank stock returns and economic growth. J Bank Finance 32(6):995–1007

Curak M, Poposki K, Pepur S (2012) Profitability determinants of the Macedonian banking sector in changing environment. Procedia Soc Behav Sci 44:406–416

Dafermos Y, Nikolaidi M, Galanis G (2018) Climate change, financial stability and monetary policy. Ecol Econ 152:219–234

Dai Z, Zhang X (2023) Climate policy uncertainty and risks taken by the bank: evidence from China. Int Rev Financ Anal 87:102579

Dai Z, Zhu H (2023) Dynamic risk spillover among crude oil, economic policy uncertainty and Chinese financial sectors. Int Rev Econ Financ 83:421–450

Dehuan J, Jin Z (2008) Firm performance and stock returns: An empirical study of the top performing stocks listed on Shanghai Stock Exchange. Acad Account Financ Stud J 12(1):79–85

Diamond DW, Rajan RG (2012) Illiquid banks, financial stability, and interest rate policy. J Polit Econ 120(3):552–591

Ding X, Ren Y, Tan W, Wu H (2023) Does carbon emission of firms matter for Bank loans decision? Evidence from China. Int Rev Financ Anal 86:102556

Dong J, Yin L, Liu X, Hu M, Li X, Liu L (2020) Impact of internet finance on the performance of commercial banks in China. Int Rev Financ Anal 72:101579

Dou X (2013) Low carbon-economy development: China’s pattern and policy selection. Energy Policy 63:1013–1020

Duan Y, Niu J (2020) Liquidity creation and bank profitability. orth Am J Econ Finance 54:101250

El Ghoul S, Guedhami O, Kim Y, Yoon HJ (2021) Policy uncertainty and accounting quality. Account Rev 96(4):233–260

Elekdag S, Malik S, Mitra S (2020) Breaking the bank? A probabilistic assessment of Euro area bank profitability. J Bank Finance 120:105949

Flannery MJ, Hankins KW (2013) Estimating dynamic panel models in corporate finance. J Corp Finan 19:1–19

Fuss S, Szolgayova J, Obersteiner M, Gusti M (2008) Investment under market and climate policy uncertainty. Appl Energy 85(8):708–721

Gaganis C, Pasiouras F, Voulgari F (2019) Culture, business environment and SMEs’ profitability: evidence from European Countries. Econ Model 78:275–292

Gavriilidis K (2021) Measuring climate policy uncertainty. Available at SSRN 3847388.

Guenther M, Guenther P (2021) The complex firm financial effects of customer satisfaction improvements. Int J Res Mark 38(3):639–662

Hakenes H, Schnabel I (2011) Bank size and risk-taking under Basel II. J Bank Finance 35(6):1436–1449

Hoang HV (2023) Environmental, social, and governance disclosure in response to climate policy uncertainty: Evidence from US firms. Environ Dev Sustain, pp 1–41.

Husain S, Sohag K, Wu Y (2022) The response of green energy and technology investment to climate policy uncertainty: an application of twin transitions strategy. Technol Soc 71:102132

Ilhan E, Sautner Z, Vilkov G (2021) Carbon tail risk. Rev Financ Stud 34(3):1540–1571

Jeitschko TD, Jeung SD (2005) Incentives for risk-taking in banking—a unified approach. J Bank Finance 29(3):759–777

Jia C (2009) The effect of ownership on the prudential behavior of banks—the case of China. J Bank Finance 33(1):77–87

Jiang W, Zeng Y (2014) State ownership, bank loans, and corporate investment. Int Rev Econ Financ 32:92–116

Kim JY, Kwak J, Lee K (2015) Estimating Tobin’s Q for listed firms in Korea (1980–2005): comparing alternative approaches and an experiment with investment functions. Seoul J Econ 28(1):1–30

Koch CT (2014) Risky adjustments or adjustments to risks: decomposing bank leverage. J Bank Finance 45:242–254

Li S, Pan Z (2022) Climate transition risk and bank performance: evidence from China. J Environ Manage 323:116275

Li P, Meng H, Yu F (2018) Chinese write-down bonds and bank capital structure. Quanti Finance 18(9):1543–1558

Li ZZ, Su C-W, Moldovan N-C, Umar M (2023) Energy consumption within policy uncertainty: considering the climate and economic factors. Renew Energy 208:567–576

Liang C, Umar M, Ma F, Huynh TL (2022) Climate policy uncertainty and world renewable energy index volatility forecasting. Technol Forecast Soc Chang 182:121810

Liu X, Liu J, Hao Y (2023) Climate change shocks and credit risk of financial institutions: evidence from China’s commercial banks. Emerg Mark Finance Trade, pp 1–15.

Lu D, Thangavelu SM, Hu Q (2005) Biased lending and non-performing loans in China’s banking sector. J Dev Stud 41(6):1071–1091

Luo X, Bhattacharya CB (2006) Corporate social responsibility, customer satisfaction, and market value. J Mark 70(4):1–18

Mishkin FS (2006) How big a problem is too big to fail? A review of Gary Stern and Ron Feldman’s too big to fail: the hazards of bank bailouts. J Econ Lit 44(4):988–1004

Montgomery CA, Wernerfelt B (1988) Diversification, Ricardian rents, and Tobin’s q. Rand J Econ, pp 623–632.

Ng J, Saffar W, Zhang JJ (2020) Policy uncertainty and loan loss provisions in the banking industry. Rev Acc Stud 25:726–777

Perotti EC, Van Oijen P (2001) Privatization, political risk and stock market development in emerging economies. J Int Money Financ 20(1):43–69

Pettway RH (1976) Market tests of capital adequacy of large commercial banks. J Financ 31(3):865–875

Ren X, Zhang X, Yan C, Gozgor G (2022) Climate policy uncertainty and firm-level total factor productivity: evidence from China. Energy Econ 113:106209

Ren X, Li J, He F, Lucey B (2023) Impact of climate policy uncertainty on traditional energy and green markets: evidence from time-varying granger tests. Renew Sustain Energy Rev 173:113058

Sadorsky P (2011) Financial development and energy consumption in Central and Eastern European frontier economies. Energy Policy 39(2):999–1006

Semieniuk G, Campiglio E, Mercure JF, Volz U, Edwards NR (2021) Low-carbon transition risks for finance. Wiley Interdisciplinary Rev Clim Change 12(1):e678

Sen S, von Schickfus M-T (2020) Climate policy, stranded assets, and investors’ expectations. J Environ Econ Manag 100:102277

Shimbar A (2021) Environment-related stranded assets: an agenda for research into value destruction within carbon-intensive sectors in response to environmental concerns. Renew Sustain Energy Rev 144:111010

Svartzman R, Bolton P, Despres M, Pereira Da Silva LA, Samama F (2021) Central banks, financial stability and policy coordination in the age of climate uncertainty: a three-layered analytical and operational framework. Clim Policy 21(4):563–580

Tan Y, Floros C (2012) Bank profitability and inflation: the case of China. J Econ Stud 39(6):675–696

Thornton PK, Ericksen PJ, Herrero M, Challinor AJ (2014) Climate variability and vulnerability to climate change: a review. Glob Change Biol 20(11):3313–3328

van Benthem AA, Crooks E, Giglio S, Schwob E, Stroebel J (2022) The effect of climate risks on the interactions between financial markets and energy companies. Nat Energy 7(8):690–697

Wang W, Zhang Y-J (2022) Does China’s carbon emissions trading scheme affect the market power of high-carbon enterprises? Energy Econ 108:105906

Wang H, Chen Z, Wu X, Nie X (2019) Can a carbon trading system promote the transformation of a low-carbon economy under the framework of the porter hypothesis?—Empirical analysis based on the PSM-DID method. Energy Policy 129:930–938

Wang K-H, Kan J-M, Qiu L, Xu S (2023) Climate policy uncertainty, oil price and agricultural commodity: From quantile and time perspective. Econ Anal Policy 78:256–272

Whitmarsh L (2011) Scepticism and uncertainty about climate change: dmensions, determinants and change over time. Glob Environ Chang 21(2):690–700

Wu X, Bai X, Qi H, Lu L, Yang M, Taghizadeh-Hesary F (2023) The impact of climate change on banking systemic risk. Econ Anal Policy 78:419–437

Xiao J, Liu H (2023) The time-varying impact of uncertainty on oil market fear: does climate policy uncertainty matter? Resour Policy 82:103533

Xu X, Huang S, Lucey BM, An H (2023) The impacts of climate policy uncertainty on stock markets: comparison between China and the US. Int Rev Financ Anal 88:102671

Yang W, Zhao R, Chuai X, Xiao L, Cao L, Zhang Z, Yang Q, Yao L (2019) China’s pathway to a low carbon economy. Carbon Bal Manage 14:1–12.

Zhang D, Cai J, Dickinson DG, Kutan AM (2016) Non-performing loans, moral hazard and regulation of the Chinese commercial banking system. J Bank Finance 63:48–60

Zheng S, Yuan R, Li N (2022) Persistent mitigation efforts and implications for China’s emissions peak using statistical projections. Sci Total Environ 826:154127

Title: Does climate policy uncertainty matter for bank value?
Authors: Mengting Fan
Zan Mo
Huijian Fu
Tsung-Hsien Wu
Zili Chen
Yue He
Publication date: 01-04-2024
Publisher: Springer US
Published in: Economic Change and Restructuring / Issue 2/2024
Print ISSN: 1573-9414
Electronic ISSN: 1574-0277
DOI: https://doi.org/10.1007/s10644-024-09651-8

Springer Professional

Abstract

Please log in to get access to your license.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Other articles of this Issue 2/2024

Energy transition in sport and public facilities: pioneering sustainable economic pathways

Public debt dynamics and fiscal sustainability in selected North African countries: new evidence from recurrent explosive behavior tests and quantile unit root analysis

Spatial differences and dynamic evolution of economic resilience: from the perspective of China’s eight comprehensive economic zones

Promoting sustainable growth through eco-innovation, energy transition, and human capital: a comparative analysis of G-7 economies

Exploring the Fiscal policy—income inequality relationship with Bayesian model averaging analysis

Empowering rural development: the socioeconomic impact of energy transition and sustainable agriculture

Premium Partner