The impacts of risk and competition on bank profitability in China

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Abstract

Several rounds of banking reforms in China have aimed to increase the competitive condition and further enhance stability in the Chinese banking sector, while the joint effects of competition and risk-taking behaviour on the profitability in the banking sector have not been studied well enough so far in the literature. The current study contributes to the empirical literature by testing the impacts of risk and competition on profitability in the Chinese banking industry (state-owned, joint-stock and city commercial banks) over the period 2003-2011 under a one-step Generalized Method of Moments (GMM) system estimator. The results do not show any robust finding with regards to the impacts of competition and risk on bank profitability, while it is found that Chinese bank profitability is affected by taxation, overhead cost, labour productivity and inflation. The study provides policy implications to the Chinese banking industry and different ownership types of Chinese commercial banks.

LanguageEnglish
Pages85-110
Number of pages26
JournalJournal of International Financial Markets, Institutions and Money
Volume40
Early online date25 Sep 2015
DOIs
Publication statusPublished - 1 Jan 2016

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Commercial banks
Profitability
Bank profitability
Banking sector
China
Banking industry
Testing
Labour productivity
Ownership
Taxation
Policy implications
Generalized method of moments
Inflation
Banking
Estimator
Overhead costs
Risk-taking behavior

Cite this

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