Does competition only impact on insolvency risk?: New evidence from the Chinese banking industry

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9 Citations (Scopus)

Abstract

Purpose:
The purpose of this paper is to investigate the impact of competition on credit risk, liquidity risk, capital risk and insolvency risk in the Chinese banking industry during the period 2003-2013.
Design/methodology/approach:
This study uses a generalized method of moments system estimator to examine the impact of competition on risk. In particular, translog specifications are used to measure the competition and insolvency risk.
Findings:
The results show that greater competition within each bank ownership type (state-owned commercial banks, joint-stock commercial banks and city commercial banks) leads to higher credit risk, higher liquidity risk, higher capital risk, but lower insolvency risk.
Originality/value:
This paper is the first piece of research testing the impact of competition on different types of risk in banking industry and it further contributes to the empirical literature by using a more accurate competition indicator (efficiency-adjusted Lerner index) and a more precise insolvency risk indicator (stability inefficiency).
LanguageEnglish
Pages332-354
Number of pages23
JournalInternational Journal of Managerial Finance
Volume13
Issue number3
DOIs
Publication statusPublished - 20 Mar 2017

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Banking industry
Insolvency risk
Commercial banks
Risk capital
Liquidity risk
Credit risk
Testing
Design methodology
Estimator
Inefficiency
Generalized method of moments
Bank ownership
Lerner index
Translog

Cite this

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title = "Does competition only impact on insolvency risk?: New evidence from the Chinese banking industry",
abstract = "Purpose:The purpose of this paper is to investigate the impact of competition on credit risk, liquidity risk, capital risk and insolvency risk in the Chinese banking industry during the period 2003-2013.Design/methodology/approach:This study uses a generalized method of moments system estimator to examine the impact of competition on risk. In particular, translog specifications are used to measure the competition and insolvency risk.Findings:The results show that greater competition within each bank ownership type (state-owned commercial banks, joint-stock commercial banks and city commercial banks) leads to higher credit risk, higher liquidity risk, higher capital risk, but lower insolvency risk.Originality/value:This paper is the first piece of research testing the impact of competition on different types of risk in banking industry and it further contributes to the empirical literature by using a more accurate competition indicator (efficiency-adjusted Lerner index) and a more precise insolvency risk indicator (stability inefficiency).",
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