Geographic Diversification and Bank Risk: Evidence from Chinese Commercial Banks in the Context of Belt and Road

Under the Belt and Road Initiative, Chinese commercial banks have actively responded to the national policy to set up branches in countries along the route, but the risks exposed by this business process need to be emphasized. Based on the financial data of the four major Chinese commercial banks, namely Bank of China, Agriculture Bank of China, Industrial and Commercial Bank of China and China Construction Bank from 2013 to 2021, this paper empirically examines the impact of geographic diversification on bank risk and the moderating effect of institutional quality. The empirical results show that: geographic diversification has a negative effect on the bank’s risk, i.e., an increase in the level of geographic diversification reduces the risk of the headquarters of Chinese commercial banks, while the institutional quality of host country strengthens this negative effect; dividing the sample data based on whether or not the branches are listed, it shows that only geographic diversification of unlisted branches reduces the risks at the bank’s headquarters; differentiating the geographic distance of branches confirms that setting up branches in areas with higher-than-average geographic distance has a significant risk diversification effect.