Advanced Search
MyIDEAS: Login to save this article or follow this journal

Efficiency measures of the Chinese commercial banking system using an additive two-stage DEA

Contents:

Author Info

  • Wang, Ke
  • Huang, Wei
  • Wu, Jie
  • Liu, Ying-Nan
Registered author(s):

Abstract

Measuring and improving the efficiency of the Chinese commercial banking system has recently attracted increasing interest. Few studies, however, have adopted the two-stage network DEA to explore this issue in the Chinese context. Because the entire operational process of the banking system could be divided into two sub-processes (deposit producing and profit earning), the evaluation of the sub-process efficiencies could be used to assist in identifying the sources of the inefficiency of the entire banking system. In this study, we utilize the network DEA approach to disaggregate, evaluate and test the efficiencies of 16 major Chinese commercial banks during the third round of the Chinese banking reform period (2003–2011) with the variable returns to scale setting and the consideration of undesirable/bad output. The main findings of this study are as follows: (i) the two-stage DEA model is more effective than the conventional black box DEA model in identifying the inefficiency of banking system, and the inefficiency of the Chinese banking system primarily results from the inefficiency of its deposit producing sub-process; (ii) the overall efficiency of the Chinese banking system improves over the study period because of the reform; (iii) the state-owned commercial banks (SOBs) appear to be more overall efficient than the joint-stock commercial banks (JSBs) only in the pre-reform period, and the efficiency difference between the SOBs and the JSBs is reduced over the post-reform period; (iv) the disposal of non-performing loans (NPLs) from the Chinese banking system in general explains its efficiency improvement, and the joint-equity reform of the SOBs specifically increases their efficiencies.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0305048313000959
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Omega.

Volume (Year): 44 (2014)
Issue (Month): C ()
Pages: 5-20

as in new window
Handle: RePEc:eee:jomega:v:44:y:2014:i:c:p:5-20

Contact details of provider:
Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description

Order Information:
Postal: http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
Web: https://shop.elsevier.com/order?id=375&ref=375_01_ooc_1&version=01

Related research

Keywords: Chinese commercial banks; Data envelopment analysis (DEA); Efficiency decomposition; Two-stage DEA;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Bonaccorsi di Patti, Emilia & Hardy, Daniel C., 2005. "Financial sector liberalization, bank privatization, and efficiency: Evidence from Pakistan," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2381-2406, August.
  2. Chen, Xiaogang & Skully, Michael & Brown, Kym, 2005. "Banking efficiency in China: Application of DEA to pre- and post-deregulation eras: 1993-2000," China Economic Review, Elsevier, vol. 16(3), pages 229-245.
  3. Fare, Rolf & Grosskopf, Shawna, 2004. "Modeling undesirable factors in efficiency evaluation: Comment," European Journal of Operational Research, Elsevier, vol. 157(1), pages 242-245, August.
  4. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of financial institutions: international survey and directions for future research," Finance and Economics Discussion Series 1997-11, Board of Governors of the Federal Reserve System (U.S.).
  5. H. Semih Yildirim & George Philippatos, 2007. "Efficiency of Banks: Recent Evidence from the Transition Economies of Europe, 1993-2000," The European Journal of Finance, Taylor & Francis Journals, vol. 13(2), pages 123-143.
  6. Chang, Tzu-Pu & Hu, Jin-Li & Chou, Ray Yeutien & Sun, Lei, 2012. "The sources of bank productivity growth in China during 2002–2009: A disaggregation view," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 1997-2006.
  7. Thomas Sexton & Herbert Lewis, 2003. "Two-Stage DEA: An Application to Major League Baseball," Journal of Productivity Analysis, Springer, vol. 19(2), pages 227-249, April.
  8. Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2004. "Privatization matters: Bank efficiency in transition countries," BOFIT Discussion Papers 8/2004, Bank of Finland, Institute for Economies in Transition.
  9. Allen N. Berger & Iftekhar Hasan & Leora F. Klapper, 2004. "Further evidence on the link between finance and growth: An international analysis of community banking and economic performance," Finance 0404017, EconWPA.
  10. Fu, Xiaoqing (Maggie) & Heffernan, Shelagh, 2007. "Cost X-efficiency in China's banking sector," China Economic Review, Elsevier, vol. 18(1), pages 35-53.
  11. Xu, Lei & Lin, Chien-Ting, 2007. "Can Chinese banks compete after accession to WTO?," Journal of Asian Economics, Elsevier, vol. 18(6), pages 883-903, December.
  12. Avkiran, Necmi K., 2011. "Association of DEA super-efficiency estimates with financial ratios: Investigating the case for Chinese banks," Omega, Elsevier, vol. 39(3), pages 323-334, June.
  13. Ariff, Mohamed & Can, Luc, 2008. "Cost and profit efficiency of Chinese banks: A non-parametric analysis," China Economic Review, Elsevier, vol. 19(2), pages 260-273, June.
  14. Kao, Chiang, 2009. "Efficiency decomposition in network data envelopment analysis: A relational model," European Journal of Operational Research, Elsevier, vol. 192(3), pages 949-962, February.
  15. Chen, Yao & Cook, Wade D. & Li, Ning & Zhu, Joe, 2009. "Additive efficiency decomposition in two-stage DEA," European Journal of Operational Research, Elsevier, vol. 196(3), pages 1170-1176, August.
  16. Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2004. "Bank performance, efficiency and ownership in transitition countries," BOFIT Discussion Papers 7/2004, Bank of Finland, Institute for Economies in Transition.
  17. Fethi, Meryem Duygun & Pasiouras, Fotios, 2010. "Assessing bank efficiency and performance with operational research and artificial intelligence techniques: A survey," European Journal of Operational Research, Elsevier, vol. 204(2), pages 189-198, July.
  18. Yao, Shujie & Han, Zhongwei & Feng, Genfu, 2008. "Ownership Reform, Foreign Competition, and Efficiency of Chinese Commercial Banks: A Non-Parametric Approach," Working Paper Series RP2008/38, World Institute for Development Economic Research (UNU-WIDER).
  19. Matthews, Kent, 2013. "Risk management and managerial efficiency in Chinese banks: A network DEA framework," Omega, Elsevier, vol. 41(2), pages 207-215.
  20. Berger, Allen N. & Hasan, Iftekhar & Zhou, Mingming, 2009. "Bank ownership and efficiency in China: What will happen in the world's largest nation?," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 113-130, January.
  21. Fukuyama, Hirofumi & Matousek, Roman, 2011. "Efficiency of Turkish banking: Two-stage network system. Variable returns to scale model," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(1), pages 75-91, February.
  22. Fu, Xiaoqing (Maggie) & Heffernan, Shelagh, 2009. "The effects of reform on China's bank structure and performance," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 39-52, January.
  23. Rolf F�re & Shawna Grosskopf, 2003. "Nonparametric Productivity Analysis with Undesirable Outputs: Comment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 1070-1074.
  24. Bhattacharyya, Arunava & Lovell, C. A. K. & Sahay, Pankaj, 1997. "The impact of liberalization on the productive efficiency of Indian commercial banks," European Journal of Operational Research, Elsevier, vol. 98(2), pages 332-345, April.
  25. Fukuyama, Hirofumi & Weber, William L., 2010. "A slacks-based inefficiency measure for a two-stage system with bad outputs," Omega, Elsevier, vol. 38(5), pages 398-409, October.
  26. Paradi, Joseph C. & Zhu, Haiyan, 2013. "A survey on bank branch efficiency and performance research with data envelopment analysis," Omega, Elsevier, vol. 41(1), pages 61-79.
  27. Akther, Syed & Fukuyama, Hirofumi & Weber, William L., 2013. "Estimating two-stage network Slacks-based inefficiency: An application to Bangladesh banking," Omega, Elsevier, vol. 41(1), pages 88-96.
  28. Barros, Carlos P. & Chen, Zhongfei & Liang, Qi Bin & Peypoch, Nicolas, 2011. "Technical efficiency in the Chinese banking sector," Economic Modelling, Elsevier, vol. 28(5), pages 2083-2089, September.
  29. Shujie Yao & Zhongwei Han & Genfu Feng, 2008. "Ownership Reform, Foreign Competition and Efficiency of Chinese Commercial Banks: A Non-parametric Approach," The World Economy, Wiley Blackwell, vol. 31(10), pages 1310-1326, October.
  30. Seiford, Lawrence M. & Zhu, Joe, 2002. "Modeling undesirable factors in efficiency evaluation," European Journal of Operational Research, Elsevier, vol. 142(1), pages 16-20, October.
  31. Williams, Jonathan & Nguyen, Nghia, 2005. "Financial liberalisation, crisis, and restructuring: A comparative study of bank performance and bank governance in South East Asia," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2119-2154, August.
  32. Berger, Allen N. & Clarke, George R.G. & Cull, Robert & Klapper, Leora & Udell, Gregory F., 2005. "Corporate governance and bank performance: A joint analysis of the static, selection, and dynamic effects of domestic, foreign, and state ownership," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2179-2221, August.
  33. Boubakri, Narjess & Cosset, Jean-Claude & Fischer, Klaus & Guedhami, Omrane, 2005. "Privatization and bank performance in developing countries," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2015-2041, August.
  34. Fries, Steven & Taci, Anita, 2005. "Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 55-81, January.
  35. Atakelty Hailu, 2003. "Nonparametric Productivity Analysis with Undesirable Outputs: Reply," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 1075-1077.
  36. Matthews, Kent & Zhang, Nina (Xu), 2010. "Bank productivity in China 1997-2007: Measurement and convergence," China Economic Review, Elsevier, vol. 21(4), pages 617-628, December.
  37. Atakelty Hailu & Terrence S. Veeman, 2001. "Non-parametric Productivity Analysis with Undesirable Outputs: An Application to the Canadian Pulp and Paper Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 605-616.
  38. Lawrence M. Seiford & Joe Zhu, 1999. "Profitability and Marketability of the Top 55 U.S. Commercial Banks," Management Science, INFORMS, vol. 45(9), pages 1270-1288, September.
  39. Avkiran, Necmi K. & Morita, Hiroshi, 2010. "Benchmarking firm performance from a multiple-stakeholder perspective with an application to Chinese banking," Omega, Elsevier, vol. 38(6), pages 501-508, December.
  40. 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.
  41. 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.
  42. James Laurenceson & Fengming Qin, 2008. "Has Minority Foreign Investment in China's Banks Improved Their Cost Efficiency?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 16(3), pages 57-74.
  43. Seiford, Lawrence M. & Zhu, Joe, 2005. "A response to comments on modeling undesirable factors in efficiency evaluation," European Journal of Operational Research, Elsevier, vol. 161(2), pages 579-581, March.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:44:y:2014:i:c:p:5-20. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.