This paper studies systemic risk in the Chinese debt market stemming from inter-corporate loan guarantees using field data from Zhejiang Province. We apply a weighted and directed network model to analyse the implications for default contagion and systemic risk under different stress testing scenarios. The empirical results indicate that the topology of the loan guarantee network is close to a ‘scale-free’ structure, which is known to be robust against accidental failures but vulnerable to coordinated attacks. Hence, the network is able to cope with idiosyncrat ic shocks resulting from single company failures, but can easily suffer from more widespread contagion if a group of systemically important companies are hit by a targeted sho ck. We further demonstrate that within our sample of small and medium-sized enterprise (SME) companies, increasing leverage reduces network stability and exacerbates the effects of contagion. More lenient bank lending policies increase the survival rate of sample companies and thereby reduce the losses from default contagion.

Default Contagion and Systemic Risk in Loan Guarantee Network / Li, Wenwei; Ben, Shenglin; Hommel, Ulrich; Paterlini, Sandra; Yu, Jiefang. - In: ACCOUNTING AND FINANCE. - ISSN 1467-629X. - 2019, 59:s2(2019), pp. 1923-1946. [10.1111/acfi.12549]

Default Contagion and Systemic Risk in Loan Guarantee Network

Paterlini, Sandra;
2019-01-01

Abstract

This paper studies systemic risk in the Chinese debt market stemming from inter-corporate loan guarantees using field data from Zhejiang Province. We apply a weighted and directed network model to analyse the implications for default contagion and systemic risk under different stress testing scenarios. The empirical results indicate that the topology of the loan guarantee network is close to a ‘scale-free’ structure, which is known to be robust against accidental failures but vulnerable to coordinated attacks. Hence, the network is able to cope with idiosyncrat ic shocks resulting from single company failures, but can easily suffer from more widespread contagion if a group of systemically important companies are hit by a targeted sho ck. We further demonstrate that within our sample of small and medium-sized enterprise (SME) companies, increasing leverage reduces network stability and exacerbates the effects of contagion. More lenient bank lending policies increase the survival rate of sample companies and thereby reduce the losses from default contagion.
2019
s2
Li, Wenwei; Ben, Shenglin; Hommel, Ulrich; Paterlini, Sandra; Yu, Jiefang
Default Contagion and Systemic Risk in Loan Guarantee Network / Li, Wenwei; Ben, Shenglin; Hommel, Ulrich; Paterlini, Sandra; Yu, Jiefang. - In: ACCOUNTING AND FINANCE. - ISSN 1467-629X. - 2019, 59:s2(2019), pp. 1923-1946. [10.1111/acfi.12549]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11572/241094
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