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The impact of financial development and bank characteristics on the operational performance of commercial banks in the Chinese transitional economy

  • Hsiu-Ling Wu
  • Chien-Hsun Chen
  • Fang-Ying Shiu

Purpose – This paper attempts to empirically examine the impact of financial development and bank characteristics on the operational performance of commercial banks in the Chinese transitional economy. Design/methodology/approach – Pooled cross-section (banks) and time-series data are employed in the empirical estimation, with the sample comprising a total of 14 Chinese banks. The period under consideration extends from 1996-2004. Fixed effects and random effects models are estimated. Findings – Empirical results exhibit higher levels of moneterization that can translate into better ROA performance for banks. The longer a bank has been in existence, the worse its ROA performance is found to be. Rather than leading to improved profitability, Chinese banks' efforts to develop non-traditional banking business actually have a negative impact on the ROA. The ROA performance of larger Chinese banks (in terms of assets) is found to be inferior to that of the smaller shareholding commercial banks. Originality/value – Particular emphasis will be placed on the unique characteristics of China's banking industry during this period of institutional transformation.

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Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 34 (2007)
Issue (Month): 5 (November)
Pages: 401-414

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Handle: RePEc:eme:jespps:v:34:y:2007:i:5:p:401-414
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