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

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][2004][2005][2006][2007][2008][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.JEL Classifications: G21, G32, C50, C23

Risk, competition and efficiency in banking: Evidence from China

“…A few empirical studies have investigated the impact of risk on competition (market power) in the banking industry (Fernández de Guevara & Maudos, 2007;Kasman & Carvallo, 2014;Tan & Floros, 2014). Most papers focus on either credit risk or insolvency risk.…”

Efisiensi Bank dalam Kelompok BUKU 4 di Indonesia: Pendekatan Data Envelopment Analysis

“…Sehingga bank dengan market power tersebut akan dapat memperoleh profit yang tinggi. Kompetisi industri perbankan di China yang rendah telah mendorong bank tersebut mampu membukukan profit yang tinggi (Tan dan Floros, 2014).…”

What Factors Influence Profitability in the Korean Credit Card Business?

“…Recent studies (Akin, Aysan, Kara, and Yildiran, 2011;Islam and Ahmed, 2012;Tan and Floros, 2014) suggested that market competitiveness, which an external factor reflecting the characteristics of an industry, is a critically influential factor in the profitability of financial institutions. In their examination of the Turkish credit card industry, Akin, Aysan, Kara, and Yildiran (2011) pointed out that the card rate is the proxy index for market competitiveness.…”

“…Islam and Ahmed (2012) also argued that the level of competitiveness in the credit card industry in Bangladesh plays a pivotal role in determining the profit size. In addition, after examining Chinese financial institutions, Tan and Floros (2014) concluded that the profitability of a financial institution is negatively affected by the fierce competitiveness among rival companies. In addition, Demirguc-Kunt, Laeven and Lebine (2003) demonstrated a correlation between intensifying market competition and a small margin between lending and borrowing rates.…”