Empirical Research On Market Structure, Efficiency And Performance In China's Banking Sector

Commercial banking is the dominant sector of China's financial system, the improvement of efficiency and performance of which plays an important role to the financial stability and development. On the relationship of market structure and performance, Traditional Collusion Hypothesis asserts the positive relationship between market concentration and bank profitability; Relative Market Power Hypothesis states that only the banks with larger market share can earn a high profit margin; Efficiency Structure Hypothesis explains the positive correlation from the perspective of efficiency, thinking that the highly efficient banks can get high returns, expand market share of their own and make banking market more concentrated; If larger market share lead to the bank's low efficiency and performance, it indicates the establishment of"Quiet life"Hypothesis.This paper carries out empirical study on market structure, efficiency (DEA), performance and their correlativity respectively in China's banking sector based on the data from 2001 to 2005. From the results, Traditional Collusion Hypothesis, Relative Market Power Hypothesis and Efficiency Structure Hypothesis are rejected, and yet"Quiet Life"is supported. It draws the following four conclusions: Firstly, market share and market concentration correlate with bank performance negatively, showing deviatory tendency in China's banking industry; Secondly, the banks with larger market share have lower efficiency and the ones with smaller market share have higher efficiency, the banks'large market shares result from not efficient operating but their macro-scale; Thirdly, bank efficiency correlates with profitability positively, bank efficiency is an important factor affecting performance and the enhancing of efficiency is helpful to better performance; Fourthly, asset scale is not significantly correlative with profitability, indicating that the effect of scale economy on performance is not obvious and there is no obvious scale economy in China's banking sector.