Diversification, Relational Capital and Bank Performance: Evidence from Commercial Banks in China

Abstract

Diversification is a crucial competition strategy for banks. In recent years, some studies posit that relational capital is regarded as an important determinants of bank competitiveness. The study tries to investigate the impact of diversification and relational capital on bank performance by using annual data of 96 Chinese commercial banks over period of 2014-2018. The empirical results of the study show that ratio of non-interest income to operating income (NII) has positive impact on bank performance. Secondly, by adding relational capital (RCI) in the estimation regression model, the interaction of NII and RCI has negative impact on bank performance, whereas the interaction of NII and RCI² has U-shape relationship with bank performance.