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This paper investigates the inter-temporal relationship between banking profitability, competition and risk of a sample of Chinese commercial banks by employing several profitability and risk indicators and using Seemingly Unrelated Regression (SUR) under a panel data framework over 2003–2009. The results support the Structure-Conduct-Performance (SCP) theory which states that there is a negative impact of competition on bank profitability. We also find that banks with higher profitability normally operate in a less competitive environment. The results have potentially important implications for the government and banking regulatory authorities to make relevant policies.
Tan et al. (Sun,) studied this question.