Market competition and corporate performance: empirical evidence from China listed banks with financial monopoly aspect

ABSTRACT

Theorists and policy experts generally believe that the higher degrees of financial monopoly and lower degrees of market competition can result in the higher performance level of companies especially in an imperfect competitive market. The banking industry is an excellent field for which to test market monopoly power and performance. In this study, we analysed data from up to 16 selected listed commercial banks in China from 2006 to 2015. The study utilized the improved Lerner index to elucidate their degree of monopoly power, respectively. Alongside this analysis, a balanced panel data model was utilized to calculate a least squares estimation, maximum likelihood estimation and generalized moment estimation processes. The results show that the state-owned commercial banks in China have poor competitiveness due to the limitations of their system of operation and the limitations in the banks’ ability to make decisions, as they are highly influenced by state macro-policies. Actually, China’s distorted financial monopoly has resulted in the poor performance of banks in the long-term, and indirectly resulted in the waste of national resources and limitation of financial policies. The relationship between the choice of operational model and the performance of listed commercial banks is mainly dictated by their natural monopoly position although such degree will deeply distort by unreasonable financial policy.

KEYWORDS:

• Lerner index
• company performance
• market competition
• financial monopoly
• commercial bank

JEL CLASSIFICATION:

• F13
• D42
• O16

Acknowledgments

This work was supported by [Key projects of The Ministry of Education humanities and Social Sciences key research base] under Grant [Number 13ZBZD01]; [2019 Jiangxi Provincial Department of Education Science and Technology Project] under Grant [number GJJ190271]; [National Natural Science Foundation of China] under Grant [number 71661008]. Also, I would like to thank my student Chen Zifan for her related work in this article.

Disclosure Statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71661008]; Key projects of The Ministry of Education humanities and Social Sciences key research base [13ZBZD01]; 2019 Jiangxi Provincial Department of Education Science and Technology Project [GJJ190271].