This paper attempts to empirically examine the impact of financial development and bank characteristics on the operational performance of commercial banks in the Chinese transitional economy.
Pooled cross‐section (banks) and time‐series data are employed in the empirical estimation, with the sample comprising a total of 14 Chinese banks. The period under consideration extends from 1996‐2004. Fixed effects and random effects models are estimated.
Empirical results exhibit higher levels of moneterization that can translate into better ROA performance for banks. The longer a bank has been in existence, the worse its ROA performance is found to be. Rather than leading to improved profitability, Chinese banks' efforts to develop non‐traditional banking business actually have a negative impact on the ROA. The ROA performance of larger Chinese banks (in terms of assets) is found to be inferior to that of the smaller shareholding commercial banks.
Particular emphasis will be placed on the unique characteristics of China's banking industry during this period of institutional transformation.
