Rational Inefficiency and non-performing loans in Chinese Banking: A non-parametric Bootstrapping Approach
AbstractThe 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 InfoPaper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2007/5.
Length: 29 pages
Date of creation: Feb 2007
Date of revision:
Publication status: Published in China Finance Review , 2007, 3, 1 , 55-75
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Web page: http://business.cardiff.ac.uk/research/academic-sections/economics/working-papers
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Bank Efficiency; China; X-inefficiency; DEA;
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-10 (All new papers)
- NEP-BAN-2007-03-10 (Banking)
- NEP-CNA-2007-03-10 (China)
- NEP-EFF-2007-03-10 (Efficiency & Productivity)
- NEP-TRA-2007-03-10 (Transition Economics)
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- 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.
- 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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