Risk-competition nexus: Evidence from Chinese banking industry

Abstract

This study have explored risk-competition nexus using multiple measures of bank risk and market structure. Dynamic panel data model generalized method of moments (GMM) have applied in this study. The annual panel data from 2000 to 2012 were taken to explore the risk-competition in Chinese banking industry. The results of this study support competition-stability, competition-fragility hypothesis conditional to various measures of bank risk and market structure. Furthermore, this study also investigated relationship between bank capitalization ratio and market structure. Result of this study have found no significant relationship between bank capitalization ratio and market structure in Chinese banking industry. Different proxies of risk and market structure measure a unique aspect of bank risk and market structure. Their response is conditional upon proxies used for measure of bank risk and market structure. Practically such hypothesis may not possible to exist simultaneously in market, it might be the measures which drives such relationship.