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Research on Market Structure and Performance of China Commercial Banks

Author: ZhouHong
Tutor: ZhangYingChun
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: The China banking Market structure Performance HHI
CLC: F832.33;F224
Type: Master's thesis
Year: 2008
Downloads: 324
Quote: 1
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Abstract

The market structure and market performance is two major theory of the industrial organization. The Harvard School SCP paradigm is the most important theoretical hypothesis that a higher degree of market concentration in the incomplete competitive markets, the banks can get higher profits through low deposit interest rates and high lending rates. In this paper, I wish test the relationship between China banking market structure and performance with SCP paradigm.Finance is the core of modern economy, and commercial banks are the basis of financial market regulation. To face commercial banks into the economic globalization, we can regard banks as an industry to research the banking market structure and performance on the base of the guidance of the theory of industrial organization. Its significance mainly in the following two aspects:First, studying the banking market structure and performance of the banks can make people to a better understanding of the status of China banking market. Then systematically study China banking market structure and the performance.Second, to research the banking market structure, performance and the relationship will help China banking structural adjustment in the increasingly fierce international competition.In selecting measurement indicators of banking market structure and performance, mainly in the modern theory of industrial organization, financial economics, econometric theory as a guide, combining norms with empirical analysis, combining qualitative analysis with quantitative analysis, and combining comprehensive analysis with comparative study. In the course of the study, the first comprehensively analyze the entire banking, and then separately analyze under the four major state-owned commercial banks and the other ten joint-stock commercial banks.Paper is divided into five chapters: The first chapter is devoted to four parts, firstly provides the significance of the issue and has a specific explanation, and then reviews the research situation, and bases on this to point out the way of the study.The second Chapter begins to describe the market structure content and types, and then from the commercial banks organizational system, the banking characteristics and other factors to analyze the structure of the banking market factors. Finally, from market share, market concentration, entry and exit barriers, product differentiation to analysis China banking market structure status. Finally selects China Banking 2005 sample data to empirically analyze China banking and reach that China banking is an oligopoly type.The third chapter introduces the meaning of the performance, and the banking performance is defined by vendor performance. The domestic banking performance appraisal system has deficiencies and urgently need to be improved. Finally selects asset profits and capital returns as the bank performance indicators to empirically analyze, which holds the higher degree of market concentration of state-owned commercial banks have the lower performance, and, the lower market concentration of the joint-stock commercial bank have the higher performance.The forth chapter is the focus of the article. Firstly using a theoretical model to explain the relationship between the banking performance and market structure, and indicate HHI as a more appropriate measure of market concentration in the banking acting variables, and then bases on the preceding chapters analysis to establish linear regression equation about the China banking market share with the banks performance ,which thinks the two different nature of the banking system have obtained results, that is, the four major state-owned commercial banks have the higher market share but the lower performance, and the other ten joint-stock commercial banks with the lower market share but have the higher performance.The final chapter points out the state-owned commercial banks need to accelerate the commercialization process and reduce policy barriers, and create diversified competitors, relax strict financial controls, and promote the process of market-oriented interest rate.The main points of the paper are:1. Through empirical analysis draws a conclusion that China market banking is an oligopoly type. 2. Through empirical analysis draws a conclusion that the higher market concentration of state-owned commercial banks have the lower performance, but the lower market concentration of the joint-stock commercial banks have the higher performance.3. Starting from the theoretical model indicates that HHI as a more appropriate measure of market concentration acting variable, and establishing model to analyze the four major state-owned commercial banks and the other ten joint-stock commercial banks.The innovative points of the paper in the following:1. To deeply analyze the status quo basing on the market structure of China banking, and point out that the expected impact about foreign banks to enter China market.2. Although abandon the SCP hypothesis assuming monopoly competition based on a theoretical model of SCP paradigm, changes of the banking market concentration will also have an impact on the banks performance.3. Basing on the 1990-2005 to respectively analyze the four major state-owned commercial banks and the other joint-stock commercial banks.The shortcomings of this article:1. Due to the availability of data restrictions, in the case of this paper, only choice 14 commercial banks as samples to estimate empirical analysis.2. Due to difficultly obtaining the data, there is not use economic value added (EVA) and the risk-adjusted rate of return (RAROC), and other new banking performance indicators to better reflect the performance of banks.3. The more complete measurement indexes of market structure also include entry and exit barriers, product differentiation, and other aspects of the quantitative measure. The follow-up study will consider other aspects to establish regression analysis model about the relationship between market structure and performance.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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