The impacts of risk-taking behaviour and competition on technical efficiency: Evidence from the Chinese banking industry |
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| Institution: | 1. School of Economics and Commerce, South China University of Technology, No. 382, Outer Ring East Road, Higher Education Mega Center, Panyu District, Guangzhou 510006, Guangdong Province, China;2. Department of Economics, Business School, University of Western Australia, 35 Stirling Highway, Crawley WA, 6009 Perth, Australia;3. School of Economics, Jinan University, No. 601 West of Huangpu Avenue, Tianhe District, Guangzhou 510632, Guangdong Province, China;4. School of Economics and Statistics, Guangzhou University, No. 230, Wai Huan Xi Road, Panyu District, Guangzhou 510006, Guangdong Province, China;1. Universidade Católica de Brasília, SGAN 916 Módulo B Avenida W5, Brasília, DF, Brazil;2. Department of Statistics, Purdue University, 250 N. University Street, West Lafayette, IN, USA;3. FGV/EPGE — Escola Brasileira de Economia e Finanças, Graduate School of Economics, Praia de Botafogo 190, Rio de Janeiro, RJ, Brazil |
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| Abstract: | This paper tests the impact of risk and competition on efficiency in the Chinese banking industry over the period 2003–2013. Comprehensive types of risk-taking behaviour are considered including credit risk, liquidity risk, capital risk, and insolvency risk. Competition is measured by the Lerner index. The results are cross-checked using an alternative econometric technique as well as an alternative competition indicator. The findings show that the technical and pure technical efficiencies of Chinese commercial banks are significantly and negatively affected by liquidity risk. They further show that greater competition precedes declines in technical and pure technical efficiencies of Chinese commercial banks. The results suggest that Chinese bank efficiency is significantly affected by bank diversification, banking sector development, stock market development, inflation and GDP growth rate. The findings also indicate that, compared to state-owned commercial banks, joint-stock commercial banks and city commercial banks have lower technical and pure technical efficiencies. |
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| Keywords: | Technical efficiency Data envelopment analysis Bank risk Chinese banks Bank competition G21 C14 G32 |
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