The Impacts of Competition and Risk on Profitability in China: Evidence from Boone Indicator and Stability Inefficiency
58 Pages Posted: 4 Nov 2017
Date Written: February 11, 2017
Abstract
This paper tests the competition in different banking markets in China (deposit market, loan market, and non-interest income market) using a sample of Chinese commercial banks over the period 2003-2013 and further examines the impact of competition on bank profitability while controlling for different types of risk. The results show that non-interest income market in the Chinese banking industry has a higher level of competition compared to the other two markets during early years of the examined period. The findings further report that in a higher competitive deposit market, Chinese commercial banks have lower levels of profitability. Finally, it is suggested the bank profitability in China is significantly affected by liquidity risk.
Keywords: Bank profitability, Bank competition, GMM, China
JEL Classification: G21, C23
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