Risk, Profitability, and Competition: Evidence from the Chinese Banking Industry

Yong Tan · Christos Floros

72 citations0/0 files storedThe Journal of developing areas

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Banking stability, regulation, efficiency Banking Sector Performance and Management Banking Systems and Strategies

Abstract

This paper investigates the inter-temporal relationship between banking profitability, competition and risk of a sample of Chinese commercial banks by employing several profitability and risk indicators and using Seemingly Unrelated Regression (SUR) under a panel data framework over 2003–2009. The results support the Structure-Conduct-Performance (SCP) theory which states that there is a negative impact of competition on bank profitability. We also find that banks with higher profitability normally operate in a less competitive environment. The results have potentially important implications for the government and banking regulatory authorities to make relevant policies.

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References

2006Bank-specific, industry-specific and macroeconomic determinants of bank profitability 1997Inside the black box: What explains differences in the efficiencies of financial institutions?2005The Theory of Bank Risk Taking and Competition Revisited 1999Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence 2001Comparing financial systems 2004Competition and Financial Stability 2010Determinants of Bank Profitability Before and During the Crisis: Evidence from Switzerland 2007Bank ownership and efficiency in China: What will happen in the world’s largest nation?

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