Research On The Relations Between Market Structure, Efficiency And Performance Of Chinese Commercial Banks

Market Performance has always been the emphasis of the theory of industrial organization, but usually we study it through finding the relation between narket structure and market performance. For the relation between them, Scholars have made a lot of study in theoretic and demonstrational aspects and formed different genres. 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.In this paper, the writer introduces the Chinese commercial banking market structure firstly. According to the analysis of large amounts of data,the conclusion is that the commercial banks in China are still an oligopoly market.And then the writer selects 11 commercial banks' sample data from 1999 to 2006 in this nation to do the empirical analysis on market structure, the banking efficiency (DEA method), the performance and the relationship between them respectively. 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.