Mandatory inclusive finance policy and small banks' operating performance: Evidence from China

Abstract We take the mandatory establishment of the Inclusive Finance Division in large state‐owned banks as a quasi‐experiment to explore the impact of inclusive finance policy on operating performance and risk‐taking behaviours of small regional banks. Using financial information for Chinese banks from 2013 to 2019, we find that small regional banks' performance deteriorated, and they engaged in more risk‐taking activities after the policy shock. Moreover, there are even much sharper performance declines in subsets of city commercial banks, and banks face high competition from large state‐owned banks.