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Is bank competition detrimental to efficiency?: Evidence from China

Zuzana Fungáčová (), Pierre Pessarossi and Laurent Weill ()

No 31/2012, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

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. JEL Codes: G21, D40 Keywords: bank, competition, efficiency, China

JEL-codes: G21 D40 (search for similar items in EconPapers)
Date: 2012-12-18
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Published in Published in China Economic Review, Volume 27, December 2013, p. 121–134

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