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RISK SPILLOVER EFFECT BETWEEN BANKS & SMES IN CHINA: A PERSPECTIVE BASED ON GARCH-COPULA-COVAR MODEL[1]⁴
Miao Yu, Xiaohui Liu, Jinghong Xu, Xiangbowen Cheng, Xiaoxi Li

ABSTRACT: In order to study the relationship between banks and SME development in the context of risk spillover, this paper uses the GARCH-time-varying Skewed-t-Copula-CoVaR model to describe the risk spillover effect between SMEs and banks. Furthermore, this study analyses the heterogeneous impact of risk spillover between SMEs and state-owned banks (SOBs), commercial banks, and joint-stock banks in China. The study findings indicate that there exists an asymmetric and two-way risk spillover effect between Chinese SMEs and banks, changes in the direction of net risk spillover between SMEs and banks are closely related to changes in PPI and the Li Keqiang Index. The study also found that under normal circumstances, it manifests as a net risk spillover of various banks to SMEs, of which the state bank’s net spillover effect on SMEs is the most significant. However, SMEs exert a net risk spillover to various banks in extreme cases, of which SMEs display the strongest net spillover effect on SOBs. Besides, SOBs have the longest net spillover period for SMEs in terms of the time period. Lastly, the changes in risk spillover effect can be attributed to different degrees of relationship between different banks and SMEs, and different degrees of risk spillover effects among different banks.

KEYWORDS:  risk spillover, SMEs, CoVaR, Time-varying Copula, banks.

JEL classification:  G21, L33, C49.

⁴Acknowledgments:  This work was supported by the Social Science Foundation of Jilin Province in 2020 "Research on the Financial Policy of Jilin Province to Support the Survival and Development of Small-and-Medium-Sized Enterprises under the Normalization of Epidemic Situation”（2020C027）, the "14th Five Year Plan" of Jilin Education Science in 2021, "Research on the Strategy of Attracting Jilin University Graduates to Stay in the Province for Employment under the Normalization of Epidemic Situation" (GH21441), and the 2022 collaborative education project of the Ministry of Education "Research on Practical Teaching Reform of Automobile Insurance" (220504649105426).