Risk, Competition and Efficiency in the Chinese Banking Industry: Evidence from Stochastic Frontier Analysis and Three-Stage Least Square Estimator
43 Pages Posted: 6 Nov 2017 Last revised: 27 Jul 2020
Date Written: September 5, 2016
Abstract
Using a sample of Chinese commercial banks over the period 2003-2013, this paper tests the interrelationships between risk, competition and efficiency in the Chinese banking industry under a three-stage least square estimator. The paper is the first study comprehensively examining different types of risk-taking behaviours of Chinese commercial banks. The findings suggest that there are significant interrelationships between credit risk, liquidity risk, capital risk and efficiencies of Chinese commercial banks. In addition, it is found that higher levels of competition lead to lower cost and revenue efficiencies and there is a significant and positive impact of credit risk on bank competition. The results provide policy implications to Chinese government and banking regulatory authorities
Keywords: Risk, Competition, Efficiency, Chinese Banking, SUR
JEL Classification: G21, C33, C14
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