Fungáčová, Zuzana Pessarossi, Pierre Weill, Laurent
Year of Publication:
BOFIT Discussion Papers No. 31/2012
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.