Abstract

Why do Chinese banks go all out to grow larger?

Author(s): Shiyong Zhao���¯���¼����Shifeng Zhao

The objective of this study is to explain why almost all Chinese banks are going all out to grow larger. They try to increase their size by attracting more deposits. The study has important policy implications since the financial authority hopes to let banks to serve small and medium-sized enterprises (SEMs), which banks are reluctant to do so. The innovation of this study is to use most updated data to disclose the causality between bank size and bank performance. This paper argues that the monopoly position of the entire banking sector in China explains the behavior of Chinese banks. Only when private investors are allowed to enter the banking industry will some banks have no interest to grow larger and have interest to serve SMEs.