Research On The Relationship Between Market Competition And Business Performance Of Commercial Banks

Abstract:In the financial sector, the banking industry occupies the core status, which is an important element related to the financial industry and even the sustained steady and healthy development of the national economy. At present, Chinese economic growth obviously becomes slow; interest rate marketization process makes substantial progress; banking market competition becomes increasingly fierce. As we all know, market competition is always an important factor that affects bank’s performance. Therefore, the research on the relationship between market competition and business performance of commercial banks has the guiding significance of Chinese commercial banks.First, this study analyzes a large number of relevant literature and research results at home and abroad, and expounds the theory concerning the relationship between market competition and business performance, and on this basis we analyze the influence mechanism of market competition and business performance in Chinese banking industry. Second, in this paper, we measure the degree of market competition and the level of business performance in the banking industry. Firstly, this study analyzes the market competition degree of Chinese banking industry according to the HHI index, the H-statistic and Lerner index calculated by related data, and the result shows that the market competition degree in Chinese banking industry is on the rise, and is at the monopolistic type. Secondly, using the factor analysis method, we choose10financial indicators to get the bank comprehensive performance value, the result shows that the business performance level of Chinese commercial banks improves continuously. Third, this study makes an empirical test on the relationship between the banking market competition and business performance, using the panel data of18commercial banks from2005to2012, choosing the commercial bank’s comprehensive performance value as dependent variable, HHI index, H-statistics and Lerner index as independent variables, and bank assets and GDP growth rate as control variables to establish the regression model. The result shows that the bank market competition degree and business performance are positively correlated relationship. Last, based on the current situation analysis and the empirical results, this study puts forward a series of policy suggestions which are beneficial to the enhancement of the bank’s business performance, including further improving the access and exit mechanism of banking industry, encouraging and guiding private capital into the banking industry, strengthening the bank management, making efforts to develop bank financial innovation etc.