Does competition only impact on insolvency risk? New evidence from the Chinese banking industry

Abstract

Purpose

The purpose of this paper is to investigate the impact of competition on credit risk, liquidity risk, capital risk and insolvency risk in the Chinese banking industry during the period 2003-2013.

Design/methodology/approach

This study uses a generalized method of moments system estimator to examine the impact of competition on risk. In particular, translog specifications are used to measure the competition and insolvency risk.

Findings

The results show that greater competition within each bank ownership type (state-owned commercial banks, joint-stock commercial banks and city commercial banks) leads to higher credit risk, higher liquidity risk, higher capital risk, but lower insolvency risk.

Originality/value

This paper is the first piece of research testing the impact of competition on different types of risk in banking industry and it further contributes to the empirical literature by using a more accurate competition indicator (efficiency-adjusted Lerner index) and a more precise insolvency risk indicator (stability inefficiency).

Citation

Tan, Y. and Anchor, J. (2017), "Does competition only impact on insolvency risk? New evidence from the Chinese banking industry", International Journal of Managerial Finance, Vol. 13 No. 3, pp. 332-354. https://doi.org/10.1108/IJMF-06-2016-0115