Dialect diversity and bank risk: Evidence from China

This study utilizes data from 264 regional commercial banks in China from 2007 to 2019 to explore the relationship between risk-taking of commercial banks and the diversity of dialects. Findings show a significant positive correlation between dialect diversity and the non-performing loan ratio of local commercial banks. In addition, the abovementioned positive correlation holds primarily in samples of small assets, low profits, and high deposits but is mitigated in banks with high loans and in regions with strong economic and legal development. Mechanism analysis confirms that dialect diversity also encourages their risk-taking behavior and competition in the credit market, thereby intensifying their proactive risk. Further discussions reveal that banks with a higher proportion of local branches are more affected by dialect diversity, and other cultural diversity indicators represented by ethnic diversity can also affect bank risk.