A Research On The Effect Of Market Competition On Bank Operational Performance Based On Path Analysis

Managing a bank is a complex process that involves interactions of numerous factors.Among all of these factors,risk-taking and profitability are the most two important indicators of bank performance.Along with the reform and opening-up policy,the Chinese banking industry is impacted by financial innovation in many aspects,such as organization,management,production,and business,and innovation is regard as a part of bank performance.Furthermore,the Chinese banking industry has undergone comprehensive reform since 1979,and as a consequence,the market structure has also been transformed.This paper discusses the effects of competition on bank innovation,risk-taking and profitability,respectively,and introduce a new perspective of mediating effect to systematically investigate the cause-and-effect relationships among competition,innovation,risk-taking and profitability in the Chinese banking industry,and our hypotheses are tested by the structural equation modeling(SEM).In the section of theoretical study,we first clarify the definitions related to competition,innovation,risk-taking and profitability,and summarize some theories about the relationships among them.Then we introduce the concept of mediating effect,and hypothesized the relationships among competition,innovation,risk-taking and profitability with meditating variables.In the section of model construction and empirical research,we discuss the relationships among competition,innovation,risk-taking and profitability with data gathered from 14 Chinese commercial banks:(1)Firstly,we utilize Boone index,which based on efficient structure hypothesis,to measure competition.(2)Secondly,we disuss the effects of competition on bank innovation,risk-taking and profitability,respectively:(?)We introduce technology gap ratio,which is based on the meta-frontier theory,to measure overall innovation,and employ GMM method to study the nonlinear relationship between competition and bank innovation.(?)We apply the grey correlation method to evaluate bank risk-taking,and employ GMM method to study the nonlinear relationship between competition and bank risk-taking.(?)Based on the SCP and RMP hypotheses,we discuss the effect of competition and market share on bank profitability.(3)Thirdly,we introduce a new perspective of mediating effect to systematically investigate the cause-and-effect relationships among competition,innovation,risk-taking and profitability.The structural equation modeling(SEM)is employed to test our hypotheses.The empirical results of this paper demonstrate the positive and direct effect of competition on innovation,the negative and indirect effect of competition on risk-taking,the positive and direct effect of competition on profitability,and illustrate a double mediating model about competition,innovation,risk-taking and profitability.The cascading relationship among them is useful for bank performance management and risk warning.