Competition, Innovation, Risk Taking, and Profitability in the Chinese Banking Sector: An Empirical Analysis Based on Structural Equation Modeling
We introduce a new perspective to systematically investigate the cause and effect relationships among competition, innovation, risk taking, and profitability in the Chinese banking industry. Our hypotheses are tested by the structural equation modeling (SEM) and the empirical results show that (i) risk taking is positively related to profitability; (ii) innovation positively affects both risk taking and profitability, and the effect of innovation on profitability works both directly and indirectly; (iii) competition negatively affects risk taking but positively affects both innovation and profitability, and the effects of competition on risk taking and profitability work both directly and indirectly; (iv) there is a cascading relationship among market competition and bank innovation, risk taking, and profitability.