Risk, competition, efficiency and its interrelationships: evidence from the Chinese banking industry

Aaron Tan, Vincent Charles, Doha Belimam, Shabbir Dastgir

Research output: Contribution to journalArticlepeer-review

Abstract

Purpose – This study investigates the interrelationships between efficiency, competition and risk in the Chinese banking industry.
Design/methodology/approach – parametric stochastic frontier analysis is used to estimate bank efficiency; Lerner index is used as the competition indicator; accounting ratios and a translog function are used to measure different types of risk; and finally the three-stage least square estimator is used to investigate the interrelationships.
Findings – The results of this study show that the impact of competition on different types of risk is significant and positive, while there is a significant and positive impact of credit risk, liquidity risk and capital risk on bank competition. In addition, the findings demonstrate that the interrelationships between efficiency and competition is significant and negative. We do not find any robust interrelationships between different types of risk and different types of efficiency; we find that diversification and higher levels of profitability reduce bank credit risk. The results suggest that a higher developed banking sector reduces the level of bank competition in China.
Practical implication – concrete policies are provided to bank managers and the banking regulatory authority in China.
Originality/value – This is the first piece of research that comprehensively investigates the interrelationships between different types of risk, competition and different efficiencies in China.
Original languageEnglish
JournalAsian Review of Accounting
Publication statusAccepted/In press - 22 Sep 2021

Fingerprint

Dive into the research topics of 'Risk, competition, efficiency and its interrelationships: evidence from the Chinese banking industry'. Together they form a unique fingerprint.

Cite this