The Impacts of Competition and Profitability on Stability : Evidence from the Chinese Banking Industry

The current study contributes to the banking literature by testing the joint impacts of competition and profitability on different types of risk (credit risk, liquidity risk, capital risk and insolvency risk) of a sample of Chinese commercial banks over the period 2003-2015 under an ordinary least square estimator. The robustness of the results is cross checked in different ways. The results show that a higher level of competition leads to financial fragility in the Chinese banking industry and profitability leads to an increase in the volume of non-performing loans of Chinese commercial banks. The findings from the current study provide important policy implications to improve stability in the Chinese banking industry