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X-efficiency versus Rent Seeking in Chinese banks: 1997-2006

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Author Info

  • Matthews, Kent

    () (Cardiff Business School)

  • Guo, Jianguang
  • Zhang, Xu

Abstract

This study demarcates cost-inefficiency in Chinese banks into X-inefficiency and rent-seeking-inefficiency. A protected banking market not only encourages weak management and X-inefficiency but also public ownership and state directed lending encourages moral hazard and bureaucratic rent seeking. This paper uses bootstrap non-parametric techniques to estimate measures of X-inefficiency and rent-seeking inefficiency for the 4 state owned banks and 10 joint-stock banks over the period 1997-2006. The paper adjusts for the quality of loans by treating NPLs as a negative output. The paper shows that Chinese banks have reduced cost inefficiency and reduced X-inefficiency at a faster rate than rent-seeking inefficiency.

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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 E2008/26.

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Length: 34 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:cdf:wpaper:2008/26

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

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References

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  1. Bogetoft, Peter & Hougaard, Jens Leth, 2001. "Rational Inefficiencies," Unit of Economics Working papers 24191, Royal Veterinary and Agricultural University, Food and Resource Economic Institute.
  2. David Hauner, 2004. "Explaining Efficiency Differences Among Large German and Austrian Banks," IMF Working Papers 04/140, International Monetary Fund.
  3. Franklin Allen & Jun Qian & Meijun Qian, 2002. "Law, Finance, and Economic Growth in China," Center for Financial Institutions Working Papers 02-44, Wharton School Center for Financial Institutions, University of Pennsylvania.
  4. Laeven, Luc, 1999. "Risk and efficiency in East Asian banks," Policy Research Working Paper Series 2255, The World Bank.
  5. Dong, Fengxia & Featherstone, Allen, 2004. "Technical and Scale Efficiencies for Chinese Rural Credit Cooperatives: A Bootstrapping Approach in Data Envelopment Analysis," Staff General Research Papers 11992, Iowa State University, Department of Economics.
  6. Drake, Leigh & Hall, Maximilian J. B., 2003. "Efficiency in Japanese banking: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 27(5), pages 891-917, May.
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Cited by:
  1. Matthews, Kent & Guo, Jianguang & Zhang, Nina, 2007. "Non-Performing Loans and Productivity in Chinese Banks: 1997-2006," Cardiff Economics Working Papers E2007/30, Cardiff University, Cardiff Business School, Economics Section.

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