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Is bank competition detrimental to efficiency? Evidence from China

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  • Fungáčová, Zuzana
  • Pessarossi, Pierre
  • Weill, Laurent

Abstract

This paper addresses the relationship between bank competition and efficiency by computing Lerner indices and cost efficiency scores for a sample of Chinese banks over the period 2002–2011. Granger-causality tests are performed in a dynamic GMM panel estimator framework to evaluate the sign and direction of causality between them. We observe no increase in bank competition over the period, even as cost efficiency improves. In a departure from the empirical literature showing that competition negatively Granger-causes cost efficiency for Western banks, we find no significant relation between competition and efficiency. This suggests that measures to increase bank competition in the Chinese context are not detrimental to efficiency.

Suggested Citation

  • Fungáčová, Zuzana & Pessarossi, Pierre & Weill, Laurent, 2013. "Is bank competition detrimental to efficiency? Evidence from China," China Economic Review, Elsevier, vol. 27(C), pages 121-134.
  • Handle: RePEc:eee:chieco:v:27:y:2013:i:c:p:121-134
    DOI: 10.1016/j.chieco.2013.09.004
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    Cited by:

    1. Pessarossi, Pierre & Weill, Laurent, 2013. "Do capital requirements affect bank efficiency? Evidence from China," BOFIT Discussion Papers 28/2013, Bank of Finland, Institute for Economies in Transition.
    2. Horvath, Roman & Seidler, Jakub & Weill, Laurent, 2016. "How bank competition influences liquidity creation," Economic Modelling, Elsevier, vol. 52(PA), pages 155-161.
    3. Florian Leon, 2015. "What do we know about the role of bank competition in Africa?," Working Papers halshs-01164864, HAL.
    4. Zuzana FungÃ¡Ä ová & Laurent Weill, 2018. "Trusting banks in China," Pacific Economic Review, Wiley Blackwell, vol. 23(2), pages 131-149, May.
    5. repec:bla:rgscpp:v:9:y:2017:i:1:p:7-23 is not listed on IDEAS
    6. Fungáčová, Zuzana & Nuutilainen, Riikka & Weill, Laurent, 2016. "Reserve requirements and the bank lending channel in China," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 37-50.
    7. repec:taf:applec:v:49:y:2017:i:40:p:3995-4012 is not listed on IDEAS
    8. Korkeamäki, Timo & Pöyry, Salla & Suo, Maiju, 2014. "Credit ratings and information asymmetry on the Chinese syndicated loan market," China Economic Review, Elsevier, vol. 31(C), pages 1-16.
    9. repec:eee:ecofin:v:43:y:2018:i:c:p:71-86 is not listed on IDEAS
    10. Andrei Vernikov, 2014. "China and Russia: Institutional Coherence between the Banking Systems," UCL SSEES Economics and Business working paper series 130, UCL School of Slavonic and East European Studies (SSEES).
    11. Hou, Xiaohui & Wang, Qing & Zhang, Qi, 2014. "Market structure, risk taking, and the efficiency of Chinese commercial banks," Emerging Markets Review, Elsevier, vol. 20(C), pages 75-88.
    12. Thanh Pham Thien Nguyen & Son Hong Nghiem & Eduardo Roca & Parmendra Sharma, 2016. "Efficiency, innovation and competition: evidence from Vietnam, China and India," Empirical Economics, Springer, vol. 51(3), pages 1235-1259, November.
    13. Pessarossi, Pierre & Weill, Laurent, 2015. "Do capital requirements affect cost efficiency? Evidence from China," Journal of Financial Stability, Elsevier, vol. 19(C), pages 119-127.
    14. repec:spi:joabfr:2018:p:10-17 is not listed on IDEAS

    More about this item

    Keywords

    Bank; Competition; Efficiency; China;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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