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Rational Cost Inefficiency in Chinese Banks

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  • Matthews, Kent

    ()
    (Cardiff Business School)

  • Xiao, Zhiguo
  • Zhang, Xu

Abstract

According to a frequently cited finding by Berger et al (1993), X-inefficiency contributes 20% to cost-inefficiency in western banks. Empirical studies of Chinese banks tend to place cost-inefficiency in the region of 50%. Such estimates would suggest that Chinese banks suffer from gross cost inefficiency. Using a non-parametric bootstrapping method, this study decomposes cost-inefficiency in Chinese banks into X-inefficiency and allocative-inefficiency. It argues that allocative inefficiency is the optimal outcome of input resource allocation subject to enforced employment constraints. The resulting analysis suggests that allowing for rational allocative inefficiency; Chinese banks are no better or worse than their western counterparts.

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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 E2009/13.

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Length: 34 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:cdf:wpaper:2009/13

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

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Citations

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Cited by:
  1. Bing Xu & Adrian Van Rixtel & Michiel Van Leuvensteijn, 2013. "Measuring bank competition in China: a comparison of new versus conventional approaches applied to loan markets," BIS Working Papers 422, Bank for International Settlements.
  2. repec:cmj:journl:y:2013:i:27:popovicimc is not listed on IDEAS
  3. Mihăiță-Cosmin M. POPOVICI, 2013. "A Survey On Bank Efficiency Research With Data Envelopment Analysis And Stochastic Frontier Analysis," SEA - Practical Application of Science, Fundația Română pentru Inteligența Afacerii, Editorial Department, issue 1, pages 134-142, June.

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