A Study On The Correlation Between Market Structure And Performance For Commercial Banking In Shanghai

Commercial banks play an important role in financial system, they contribute greatly to economic growth for China. It is now popular to analyze the correlation between market structure and performance of domestic banking with the approach of SCP(short for Structure, Conduct and Performance) paradigm, which is based on the theory of industrial organization. Since Shanghai is the most flourishing district in China, it keeps ahead in opening and development of commercial banking in the whole country.Therefore, it has both theoretical and realistic significance to take this city as a sample to study the evolution of market structure and performance of commercial banking and, to analyze the correlation between them.At first, based upon the theory of market structure and performance in modern industrial organization, and on data of 16 commercial banks from 1998 to 2005, this paper makes comprehensively positive analysis on market structure and performance of Shanghai commercial banking. The conclusions are as following,(1), For MS(short for Market Share), the state-owned commercial banks goes down, while the non-state-owned goes up. In CR(short for Concentration Ratio) and HHI(short for Hirschman-Herfindahl Index), the commercial banking as whole prensents decline gradually. Monopolization is much lower, and competition more fierce in Shanghai, by comparison with the whole country.(2), Both in ROA(short for Return on Asset) and L/D Ratio(short for Loan/Deposit Ratio), the state-owned commercial banks get remarkable improvement, while the non-state-owned decline. As to NPA Ratio(short for Non-Performing Asset Ratio), most of commercial banks make great progress. In contrast to the whole China, Shanghai presents higher level in ROA in commercial banking.Thereafter, the paper explains the theories of the correlation between market structure and performance in banking, which called MP Hypothesis(short for Market-Power Hypothesis) and ES Hypothesis(short for Efficient-Stucture Hypothesis). And it builds a regression model by adding independent varibale GPI(short for GDP per capita index) on basis of existent equation, then an empirical analysis is made on the correlation between market structure and performance of commercial banking in Shanghai with the mixed data of 128 samples. The result shows that,(1), Both MP and ES Hypotheses are NOT applicable to commercial banking in Shanghai.(2), For each independent varibales, it presents distinction between the different ownership banks, in which HHI has positive correlation to ROA for two types'banks, for MS, it has negative correlation to ROA for non-state-owned commercial banks only, GPI, however, has positive correlation to ROA for state-owned only.In the end of this paper, it put forward some suggestions on policy according to the comprehensive analysis above. Also the author points out the limit of the paper and further research direction.