Study On The Influence Of Financial Product Innovation On Competition,Profitability And Risk Of Commercial Bank

The advent of a large number of financial product innovation, not only changed the operation conception and pattern of financial institutions, but also promoted the financial reform and the process of financial internationalization, and caused enormous and far-reaching impact on the economic development of the whole world. Even though the financial innovation of commercial banks in our country started very late, with the deepening of the reform of banking, the importance of financial innovation of commercial bank have improved. Commercial banks making constant financial product innovations in order to improve their competition and profitability and reduce risk. So, studying on the influence of financial product innovation on competition, profitability and risk of commercial bank becomes an important subject.Through reviewing the existing literature, we can know more about this topic. And then, this paper concluded relevant contents about financial product innovation of commercial bank, it concluded the type of financial product of commercial bank, the development process and developing trend of financial product innovation of commercial bank, and the reason why commercial bank need financial product innovation. After all of the basis theory, this paper introduced what Generalized Method of Moments technique(GMM) and Sargan test and Arellano Bond test are, and determined what variable and sample would be used. Then, this paper using the empirical analysis to give the conclusion and suggestions.This article applies the GMM for dynamic panels using bank-level data for 140 commercial banks in China over the period 2000 to 2014 to investigate the influence of financial product innovation on competition, profitability and risk of commercial bank. The empirical results showed that the relationship between financial product and competition is inverted U-shaped, the relationship between financial product and risk is U-shaped, the relationship between patent and profitability is U-shaped while the relationship between intermediate business income share and profitability is inverter U-shaped, which is to say, at first, the competition rises as the level of financial product innovation goes up, but, after the competition crosses a critical point, it goes down as the financial product innovation goes up. The profitability goes down(up) as the level of patent(intermediate business income share) goes up, but after the profitability crosses a critical point, the profitability rises(goes down) as the level of patent(IBIS) goes up. Similarly, at first, the risk goes down as the level of financial product innovation goes up, but after the risk crosses a critical point, it rises as the financial product innovation goes up. In addition, this paper did Sargan test and Arellano Bond. Finally, some advices for commercial bank and banking regulators are provided also.