Competitions in different banking markets and shadow banking: evidence from China

Aaron Tan, Zhenghui Li, Siming Liu, Muhammad Imran Nazir, Muhammad Haris

Research output: Contribution to journalArticlepeer-review

Abstract

Purpose: This study investigates the interrelationships between competitions in different banking markets and shadow banking for the Chinese banking industry over the period 2003–2017. The current study also examines the determinants of competition in different banking markets and the factors influencing the size of shadow banking. Design/methodology/approach: Bank competition is measured by the Boone indicator, while the relationship between bank competition and shadow banking is examined through a three-stage least square estimator. Findings: The findings suggest that a larger volume of shadow banking leads to a decline in the level of competition in the deposit market, loan market and noninterest income market, while an increase in the level of competition in the loan market, deposit market and noninterest income market leads to an expansion of shadow banking. The authors find that higher bank risk and higher developed of stock market reduce the competitive condition in the loan market, and the competition in the deposit market will be enhanced by higher levels of banking sector development and higher levels of inflation, but bank diversification will reduce the level of competition in the deposit market. The authors further find that higher bank profitability and higher stock market development reduce bank competition in the noninterest income market. Finally, the results show that larger bank size and higher development of stock market reduce the size of shadow banking in China, but higher economic growth increases the size of shadow banking. Originality/value: This is the first piece of research investigating the relationship between bank competition and shadow banking. This will also be the first piece of research examining the determinants of competition in different banking markets and also the factors influencing the size of shadowing banking in China.

Original languageEnglish
Number of pages19
JournalInternational Journal of Emerging Markets
Early online date12 Jan 2021
DOIs
Publication statusE-pub ahead of print - 12 Jan 2021

Fingerprint Dive into the research topics of 'Competitions in different banking markets and shadow banking: evidence from China'. Together they form a unique fingerprint.

Cite this