The Effects Of Market Competitiveness On Bank Diversification In China

Under the background of technological progress,loan disinter-mediation,increasing financial innovation activities,the changing competition environment and structure of Chinese banking,as well as the weakened strength of traditional interest income,there is a trend of exploration for commercial banks’ diversification strategy.From the microcosmic perspective of the banking competition,this paper uses the unbalanced panel data of 103 Chinese commercial banks from 2003 to 2015.Based on the Lerner index calculation of banks by Seemingly Unrelated Regressions techniques,we establish the linear and nonlinear Bidirectional Fixed Effect model to respectively examine the effect of market competition on the business diversification of banks.The results show that:(1)Chinese commercial bank market power positively leads to revenue diversification on the whole,which presents that the stronger market power promotes revenue diversification development and stronger market competition inhibits revenue diversification.The market competition has different influences on diversification incentive among different types of commercial banks in China.To be specific,the influence is positive for the big four state-owned banks,and is negative for city commercial banks.National share-holding listed banks and rural commercial banks show no definite trend.(2)Chinese commercial bank market power is positively related to asset diversification,overall lower market power and higher market competition level of Chinese banking leads to more loans,restrain the asset diversification.This conclusion is significantly positive for the big four state-owned Banks,significantly negative for the city commercial banks,but not significant for other types of bank.(3)The nonlinear relationship between commercial bank competition and business diversification in China does not exist at present.(4)In an integrated perspective of revenue diversification and asset diversification,business diversification of China’s banking industry in initial period still needs to rely on stronger market power.Under market competition pressure,city commercial banks need to focus on risk as diversification developing.