Market Share and Innovation: Evidence from China’s Wealth Management Product Market
37 Pages Posted: 22 Jan 2019
Date Written: August 2018
Abstract
We build a model to describe the players’ innovation decision under competition. We find that there is a threshold level of market share which determines a player’s innovation decision. Wealth management product(WMP) is a financial innovation in China. We use the WMP market data from 2004 to 2016 combined with bank balance sheet information and city characteristics and construct two different data structures: One is at bank level (thus bank asset share) and the other is at city level(thus local branch share). With both data structures and various indicators of WMP issuance, we verify that there is an inverse U shape between innovation and market share.
We also explore the possible channels for a bank to actively offer WMPs:
(i) concentration in local market;
(ii) capability of innovation; and
(iii) first-mover advantage.
Specifically, we find that a more concentrated banking environment will undermine the role that market share plays in banks’ WMP issuance, a higher ability of innovation will intensify the role of market share, and the first-mover advantage undermines the marginal effect of market share.
Keywords: market share, financial innovation, wealth management product
Suggested Citation: Suggested Citation