The Impact of Local Economic Growth on Bank Profits Efficiency: Evidence from City Commercial Banks in China

Abstract

Chinese city commercial banks are well-suited for exploring the impact of local economic growth on bank performance. We find that local economic growth has a negative impact on profits efficiency of city commercial bank. Moreover, the magnitude of the impact is very large. The findings suggest that a moderate decline in local economic growth may increase significantly the banking performance. The nexus between the control system of local officials and internal governance structure of city commercial banks in China may explain the results. Our study contributes to thin literature on relationship between local economic growth and bank performance.