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Rational Inefficiency and non-performing loans in Chinese Banking: A non-parametric Bootstrapping Approach

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Author Info

  • Matthews, Kent

    ()
    (Cardiff Business School)

  • Guo, Jianguang
  • Zhang, Nina

Abstract

The existing Chinese banking system was born out of a state-planning framework focussed on the funding of state-owned enterprises. Despite the development of a modern banking system, numerous studies of Chinese banking point to its high level of average inefficiency. Much of this inefficiency relates to the high level of non-performing loans held on the banks books. This study argues that a significant component of inefficiency relates to a defunct bureaucratic incentive structure. Using bootstrap non-parametric techniques the paper decomposes cost-inefficiency into X-inefficiency and rational inefficiency caused by bureaucratic rent seeking. In contrast to other studies of the Chinese banking sector, the paper argues that a change in the incentive structure and the competitive threat of the opening up of the banking market in 2007 has produced reduced inefficiency and improved performance.

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Bibliographic Info

Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2007/5.

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Length: 29 pages
Date of creation: Feb 2007
Date of revision:
Publication status: Published in China Finance Review , 2007, 3, 1 , 55-75
Handle: RePEc:cdf:wpaper:2007/5

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Related research

Keywords: Bank Efficiency; China; X-inefficiency; DEA;

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Cited by:
  1. Asmild, Mette & Bogetoft, Peter & Leth Hougaard, Jens, 2013. "Rationalising inefficiency: Staff utilisation in branches of a large Canadian bank," Omega, Elsevier, Elsevier, vol. 41(1), pages 80-87.
  2. Asmild, Mette & Matthews, Kent, 2012. "Multi-directional efficiency analysis of efficiency patterns in Chinese banks 1997–2008," European Journal of Operational Research, Elsevier, Elsevier, vol. 219(2), pages 434-441.

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