An Empirical Study On Market Structure, Managerial Behavior And Performance Of Chinese Commercial Banks

Based on the classical "structure-behavior-performance" paradigm in the theory of industrial organization, this thesis explores the determinants of the performance of Chinese commercial banks. After a description of the characteristics of the industrial organization of Chinese commercial banks, it builds an empirical model to capture the links between market structure, managerial behavior and performance. It analyzes banks of two ownership types, state-owned commercial banks and joint-stock commercial banks, respectively and compares the results.In the empirical part of the thesis, four state-owned commercial banks and 10 joint-stock commercial banks except Evergrowing Bank are chosen as subjects. Sample includes data from 1998 through 2004. Factor analysis is used to identify the factors reflecting the market power, operation efficiency, asset security and asset liquidity of banks. Then a stepwise multiple regression of return on equity against these factors and market concentration ratio is conducted to determine the main factors affecting the performance of Chinese commercial banks.The conclusions of the study are summarized as follows:1. For banks of both ownership types, the market concentration ratio has no significant effect on the performance and there is a significant negative relationship between market power and return on equity. It seems the relationship between market structure and performance of Chinese commercial banks fits "quite life" hypothesis.2. The loan security has a significant positive effect on the return on equity of state-owned commercial banks, which implies the large amount of bad loans is a big obstacle for state-owned commercial banks to improve their performance.3. The asset liquidity has a significant positive effect on the return on equity for joint-stock commercial banks.4. The capital adequacy has a significant negative effect on the return on equity for joint-stock commercial banks, which implies the financial leverage enhances the profitability of joint-stock commercial banks.Based on the conclusions above, the last part of the thesis gives some concrete advices on the improvement of the performance of Chinese commercial banks.