Bank regulatory penalties and corporate financial asset holdings: evidence from China

We explore the impact and mechanism of bank regulatory penalties on corporate financial asset holdings. Using administrative penalty information published by the National Financial Regulatory Administration from 2011 to 2020, we construct an indicator of penalty intensity and match it with China's A-share listed firms for the empirical analysis. We find that high-intensity bank regulatory penalties can significantly reduce corporate holdings of financial assets. In particular, penalties related to the bank credit business have a more significant impact. Mechanism analysis shows that an increase in penalty intensity reduces firms' financial assets by weakening their motivations for precautionary savings and speculative profit seeking. Further analysis shows that bank regulatory penalties can improve firms' TFP. Our research conclusions provide new insights for understanding the actual economic consequences of bank regulatory penalties and encouraging firms to shift from virtuality to reality.