The impact of bank efficiency on risk management in Chinese commercial banks

Based on macroeconomic data and commercial bank data in China from 2007 to 2022, this paper analyzes whether the cost efficiency and profit efficiency of commercial banks influence their risk management behavior. The findings indicate the following: banks with better cost efficiency tend to restrain the impulse for risk expansion induced by loose monetary policies, whereas high profit efficiency incentivizes commercial banks to pursue high returns from high-risk activities, leading to an increase in risk-taking levels. Moreover, when the capital adequacy ratio is high, the restrictive effect of high cost efficiency on risk management decreases, while the stimulating effect of high profit efficiency becomes more pronounced.