Title: Risk, competition and cost efficiency in the Chinese banking industry

Authors: Yong Tan; Christos Floros

Addresses: Department of Accountancy, Finance and Economics, Huddersfield Business School, University of Huddersfield, Huddersfield, Queensgate, HD1 3DH, UK ' Department of Accounting and Finance, Technological Educational Institute of Crete, Heraklion, Greece; School of Social Sciences, Hellenic Open University, Patras, Greece

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.

Keywords: credit risk; competition; cost efficiency; Chinese banking; three-stage least square.

DOI: 10.1504/IJBAAF.2019.099424

International Journal of Banking, Accounting and Finance, 2019 Vol.10 No.2, pp.144 - 161

Available online: 24 Apr 2019 *

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