Managerial macroeconomic perception and systemic risk in China

Abstract

This paper constructs a managerial macroeconomic perception index based on the textual financial disclosures and examines its impact on systemic risk in China. We reveal a significant positive relationship between managerial macroeconomic perception, particularly the forward-looking managerial macroeconomic perception, and bank systemic risk. Our study shows that managers with optimistic perception about macroeconomic conditions tend to engage in excessive risk-taking activities and increase the risk contagion among banks. Heterogeneous analyses suggest that the positive relationship between manager macroeconomic perception and systemic risk is more pronounced among banks that are non-state-owned, exclusively listed in A-shares, highly leveraged, or not considered systemically important. We also show that macroeconomic policy can mitigate the negative impact of managerial macroeconomic perception on systemic risk. These findings highlight the substantial role that managerial macroeconomic perception plays in shaping systemic risk within the banking sector.