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Risk, competition and cost efficiency in the Chinese banking industry

Author

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  • Yong Tan
  • Christos Floros

Abstract

Using a sample of Chinese commercial banks over the period 2003-2013, this paper tests the interrelationships between credit risk, competition and cost efficiency in the Chinese banking industry under a three-stage least square estimator. The findings suggest that a higher level of competition leads to higher credit risk of Chinese commercial banks and a higher level of efficiency leads to lower credit risk. In addition, it is found that higher level of efficiency results in higher level of competition in the Chinese banking industry and higher levels of credit risk precede an increase in the level of competition. Finally, the results show that Chinese commercial banks with higher levels of credit risk have lower levels of cost efficiency and competition-efficiency hypothesis holds in the Chinese banking industry. The results provide policy implications to the Chinese Government and banking regulatory authorities.

Suggested Citation

  • Yong Tan & Christos Floros, 2019. "Risk, competition and cost efficiency in the Chinese banking industry," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 10(2), pages 144-161.
  • Handle: RePEc:ids:injbaf:v:10:y:2019:i:2:p:144-161
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    Citations

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    Cited by:

    1. Nicholas Addai Boamah & Emmanuel Opoku & Kingsley Opoku Appiah, 2022. "Efficiency, foreign banks presence, competition and risk exposure of banks in middle-income economies," SN Business & Economics, Springer, vol. 2(8), pages 1-21, August.
    2. Mariya Rubakha & Lesia Tkachyk & Olena Hamkalo & Khrystyna Demkiv, 2019. "Integral Assessment of Banking Activity Effectiveness and Rating of Ukrainian and Bulgarian Banks," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 70-96.
    3. Phan, Hanh Thi My & Daly, Kevin, 2020. "Market concentration and bank competition in emerging asian countries over pre and post the 2008 global financial crisis," Research in International Business and Finance, Elsevier, vol. 51(C).
    4. Jorge Antunes & Abdollah Hadi-Vencheh & Ali Jamshidi & Yong Tan & Peter Wanke, 2022. "Bank efficiency estimation in China: DEA-RENNA approach," Annals of Operations Research, Springer, vol. 315(2), pages 1373-1398, August.

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