TY - JOUR
T1 - Stability and Profitability in the Chinese Banking Industry
T2 - Evidence from an auto-regressive-distributed linear specification
AU - Tan, Yong
AU - Anchor, John
N1 - No accepted date on ePrints. No specific publication date on output.
PY - 2016
Y1 - 2016
N2 - The important role played by the Chinese commercial banks in the development of China's economy has made the government and banking regulatory authority concerned about the performance of these banks. Indeed the stability of the banking sector has attracted greater attention since the financial crisis of 2007-2009. The principal objective of this study is to investigate the inter-relationships between profitability and stability in the Chinese banking industry. Using a sample of Chinese commercial banks over the period 2003-2013, the study examines the inter-relationships under an auto-regressive-distributed linear model. Both Z-score and stability inefficiency were used as measures of stability, while Return on Assets (ROA) was used as the indicator of profitability. Different types of Generalized Method of Moments (GMM) estimators including difference GMM, one-step system GMM, two-step system GMM as well as two-step robust GMM were used. In order to the check the robustness of the results, alternative econometric techniques were used, such as ordinary least square (OLS) estimator, between effect estimator, as well as fixed effect estimator. The results show that higher insolvency risk/lower bank stability leads to higher profitability of Chinese commercial banks and also that higher profitability leads to higher bank fragility.
AB - The important role played by the Chinese commercial banks in the development of China's economy has made the government and banking regulatory authority concerned about the performance of these banks. Indeed the stability of the banking sector has attracted greater attention since the financial crisis of 2007-2009. The principal objective of this study is to investigate the inter-relationships between profitability and stability in the Chinese banking industry. Using a sample of Chinese commercial banks over the period 2003-2013, the study examines the inter-relationships under an auto-regressive-distributed linear model. Both Z-score and stability inefficiency were used as measures of stability, while Return on Assets (ROA) was used as the indicator of profitability. Different types of Generalized Method of Moments (GMM) estimators including difference GMM, one-step system GMM, two-step system GMM as well as two-step robust GMM were used. In order to the check the robustness of the results, alternative econometric techniques were used, such as ordinary least square (OLS) estimator, between effect estimator, as well as fixed effect estimator. The results show that higher insolvency risk/lower bank stability leads to higher profitability of Chinese commercial banks and also that higher profitability leads to higher bank fragility.
KW - Bank profitability
KW - Bank risk
KW - China
UR - http://www.scopus.com/inward/record.url?scp=85011883605&partnerID=8YFLogxK
U2 - 10.21511/imfi.13(4).2016.10
DO - 10.21511/imfi.13(4).2016.10
M3 - Article
AN - SCOPUS:85011883605
VL - 13
SP - 120
EP - 128
JO - Investment Management and Financial Innovations
JF - Investment Management and Financial Innovations
SN - 1810-4967
IS - 4
ER -