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Risk management and managerial efficiency in Chinese banks: A network DEA framework

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  • Matthews, Kent

Abstract

Risk management in Chinese banks has traditionally been the Cinderella of its internal functions. Political stricture and developmental imperative have often overridden standard practice of risk management resulting in large non-performing loan (NPL) ratios. The training and practice of risk managers remain second class compared with foreign banks operating in China. This paper surveys Chinese bank risk managers and constructs metrics of risk management practice and risk management organisation. The metrics are used as intermediate inputs in a Network DEA framework to produce a measure of income efficiency. A statistical test is carried out to assess the importance of the risk metrics in evaluating bank income efficiency.

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Bibliographic Info

Article provided by Elsevier in its journal Omega.

Volume (Year): 41 (2013)
Issue (Month): 2 ()
Pages: 207-215

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Handle: RePEc:eee:jomega:v:41:y:2013:i:2:p:207-215

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Keywords: Risk management; Risk organisation; Managerial efficiency; Network DEA;

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References

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  1. Hannan, Timothy H & Hanweck, Gerald A, 1988. "Bank Insolvency Risk and the Market for Large Certificates of Deposit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 203-11, May.
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  4. Berger, Allen N. & DeYoung, Robert, 1997. "Problem loans and cost efficiency in commercial banks," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 849-870, June.
  5. Tone, Kaoru & Tsutsui, Miki, 2009. "Network DEA: A slacks-based measure approach," European Journal of Operational Research, Elsevier, vol. 197(1), pages 243-252, August.
  6. Cook, Wade D. & Liang, Liang & Zhu, Joe, 2010. "Measuring performance of two-stage network structures by DEA: A review and future perspective," Omega, Elsevier, vol. 38(6), pages 423-430, December.
  7. Fare, Rolf & Grosskopf, Shawna, 2000. "Network DEA," Socio-Economic Planning Sciences, Elsevier, vol. 34(1), pages 35-49, March.
  8. Kao, Chiang & Hwang, Shiuh-Nan, 2008. "Efficiency decomposition in two-stage data envelopment analysis: An application to non-life insurance companies in Taiwan," European Journal of Operational Research, Elsevier, vol. 185(1), pages 418-429, February.
  9. Pastor, Jesus T. & Ruiz, Jose L. & Sirvent, Inmaculada, 1999. "A statistical test for detecting influential observations in DEA," European Journal of Operational Research, Elsevier, vol. 115(3), pages 542-554, June.
  10. Chen, Yao & Liang, Liang & Zhu, Joe, 2009. "Equivalence in two-stage DEA approaches," European Journal of Operational Research, Elsevier, vol. 193(2), pages 600-604, March.
  11. Stanislav Kolenikov & Gustavo Angeles, 2009. "Socioeconomic Status Measurement With Discrete Proxy Variables: Is Principal Component Analysis A Reliable Answer?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(1), pages 128-165, 03.
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Cited by:
  1. Wang, Ke & Huang, Wei & Wu, Jie & Liu, Ying-Nan, 2014. "Efficiency measures of the Chinese commercial banking system using an additive two-stage DEA," Omega, Elsevier, vol. 44(C), pages 5-20.
  2. repec:cmj:journl:y:2013:i:27:popovicimc is not listed on IDEAS
  3. Asmild, Mette & Matthews, Kent, 2012. "Multi-directional efficiency analysis of efficiency patterns in Chinese banks 1997–2008," European Journal of Operational Research, Elsevier, vol. 219(2), pages 434-441.
  4. Liu, John S. & Lu, Louis Y.Y. & Lu, Wen-Min & Lin, Bruce J.Y., 2013. "A survey of DEA applications," Omega, Elsevier, vol. 41(5), pages 893-902.
  5. Lau, Kwok Hung, 2013. "Measuring distribution efficiency of a retail network through data envelopment analysis," International Journal of Production Economics, Elsevier, vol. 146(2), pages 598-611.

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