Is Bank Competition Detrimental to Efficiency? Evidence from China

36 Pages Posted: 26 Jan 2013 Last revised: 12 May 2015

See all articles by Zuzana Fungáčová

Zuzana Fungáčová

Bank of Finland - Institute for Economies in Transition (BOFIT)

Pierre Pessarossi

French Banking Supervisory Authority - Autorité de Contrôle Prudentiel et de Résolution (ACPR)

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie)

Date Written: December 17, 2012

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.

Keywords: bank, competition, efficiency, China

JEL Classification: G21, D40

Suggested Citation

Fungacova, Zuzana and Pessarossi, Pierre and Weill, Laurent, Is Bank Competition Detrimental to Efficiency? Evidence from China (December 17, 2012). China Economic Review, Vol. 27, No. Dec, 2013, BOFIT Discussion Paper No. 31/2012, Available at SSRN: https://ssrn.com/abstract=2206860 or http://dx.doi.org/10.2139/ssrn.2206860

Zuzana Fungacova

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

Snellmaninaukio
PO Box 160
Helsinki 00101
Finland

HOME PAGE: http://www.bof.fi/bofit_en/index.htm

Pierre Pessarossi

French Banking Supervisory Authority - Autorité de Contrôle Prudentiel et de Résolution (ACPR) ( email )

Paris
France

Laurent Weill (Contact Author)

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie) ( email )

61 Avenue de la Forêt Noire
F-67085 Strasbourg Cedex
France

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