IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Explaining Bank Efficiency Differences Between China and Taiwan by Meta-Frontier Cost Function

  • Yi-Cheng Liu

    ()

    (International Business Department, Tamkang University, 151 Yingzhuan Rd., Tamsui Dist., New Taipei City 25137, Taiwan (R.O.C.), Taiwan)

  • Wen Yang

    ()

    (Department of Statistics, Tamkang University, 151 Yingzhuan Rd., Tamsui Dist., New Taipei City 25137, Taiwan (R.O.C.), Taiwan)

  • Shin-Ying Mai

    ()

    (Financial Analyst, C.I.T. Group, New Jersey, USA)

  • Chao-Cheng Mai

    ()

    (Department of Industrial Economics, Tamkang University, Taiwan; Research Center for Humanities and Social Sciences, Academia Sinica, 128 Sec. 2, Academia Rd., Nankang, Taipei 11529, Taiwan (R.O.C.), Taiwan)

Registered author(s):

    The purpose of this paper is to employ the Meta-Frontier Cost Function to compare the efficiencies of banks in China and Taiwan over the period 2003–2009. Different from previous literature using loans and securities as the output variables in evaluating banking efficiency, we propose two new variables: interest income on loans and nonperforming loans, to identify whether the banks are both cost and profit efficient and to control the quality of loans. Evidence is found that the average cost efficiency of China's banks leads the Taiwanese banks with a significant gap. Some policy implications are provided accordingly.

    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.worldscinet.com/cgi-bin/details.cgi?type=pdf&id=pii:S0219091512500245
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=html&id=pii:S0219091512500245
    Download Restriction: Access to full text is restricted to subscribers.

    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.

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

    Volume (Year): 15 (2012)
    Issue (Month): 04 ()
    Pages: 1250024-1-1250024-25

    as
    in new window

    Handle: RePEc:wsi:rpbfmp:v:15:y:2012:i:04:p:1250024-1-1250024-25
    Contact details of provider: Web page: http://www.worldscinet.com/rpbfmp/rpbfmp.shtml

    Order Information: Email:


    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. Barbara Casu & Philip Molyneux, 2000. "A Comparative Study of Efficiency in European Banking," Center for Financial Institutions Working Papers 00-17, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Ku-Hsieh Chen & Hao-Yen Yang, 2011. "A cross-country comparison of productivity growth using the generalised metafrontier Malmquist productivity index: with application to banking industries in Taiwan and China," Journal of Productivity Analysis, Springer, vol. 35(3), pages 197-212, June.
    3. Berg, Sigbjorn Atle & Forsund, Finn R. & Hjalmarsson, Lennart & Suominen, Matti, 1993. "Banking efficiency in the Nordic countries," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 371-388, April.
    4. Hsiu-Ling Wu & Chien-Hsun Chen & Mei-Hsuan Lin, 2007. "The Effect of Foreign Bank Entry on the Operational Performance of Commercial Banks in the Chinese Transitional Economy," Post-Communist Economies, Taylor & Francis Journals, vol. 19(3), pages 343-357.
    5. Hughes, Joseph P, et al, 1996. "Efficient Banking under Interstate Branching," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 1045-71, November.
    6. Marc Jim Mariano & Renato Villano & Euan Fleming, 2011. "Technical Efficiency of Rice Farms in Different Agroclimatic Zones in the Philippines: An Application of a Stochastic Metafrontier Model," Asian Economic Journal, East Asian Economic Association, vol. 25(3), pages 245-269, 09.
    7. Bos, Jaap W. B. & Schmiedel, Heiko, 2006. "Is there a single frontier in a single European banking market?," Working Paper Series 0701, European Central Bank.
    8. Bauer, Paul W. & Berger, Allen N. & Ferrier, Gary D. & Humphrey, David B., 1998. "Consistency Conditions for Regulatory Analysis of Financial Institutions: A Comparison of Frontier Efficiency Methods," Journal of Economics and Business, Elsevier, vol. 50(2), pages 85-114, March.
    9. Jonathan Anderson, 2006. "Five Persistent Myths about China's Banking System," Cato Journal, Cato Journal, Cato Institute, vol. 26(2), pages 243-250, Spring/Su.
    10. Yan Lu & Hung-Gay Fung & Xianfeng Jiang, 2007. "Market Structure and Profitability of Chinese Commercial Banks," Chinese Economy, M.E. Sharpe, Inc., vol. 40(5), pages 100-113, September.
    11. Laurent Weill, 2004. "Measuring Cost Efficiency in European Banking: A Comparison of Frontier Techniques," Journal of Productivity Analysis, Springer, vol. 21(2), pages 133-152, March.
    12. 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.
    13. Wai-chung Lo & Michael C. M. Ng, 2009. "Banking Reform and Corporate Governance," Chinese Economy, M.E. Sharpe, Inc., vol. 42(5), pages 21-39, September.
    14. Joseph P. Hughes & William W. Lang & Loretta J. Mester & Choon-Geol Moon, 1996. "Safety in numbers? Geographic diversification and bank insolvency risk," Proceedings 504, Federal Reserve Bank of Chicago.
    15. 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.
    16. Allen N. Berger & Loretta J. Mester, 1997. "Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?," Center for Financial Institutions Working Papers 97-04, Wharton School Center for Financial Institutions, University of Pennsylvania.
    17. Hsiu-Ling Wu & Chien-Hsun Chen, 2010. "Operational performance of commercial banks in the Chinese transitioal economy," Journal of Developing Areas, Tennessee State University, College of Business, vol. 44(1), pages 383-396, September.
    18. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    19. Beccalli, Elena, 2004. "Cross-country comparisons of efficiency: Evidence from the UK and Italian investment firms," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1363-1383, June.
    20. Altunbas, Yener & Evans, Lynne & Molyneux, Philip, 2001. "Bank Ownership and Efficiency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 926-54, November.
    21. Alicia García-Herrero & Sergio Gavilá & Daniel Santabárbara, 2006. "China's Banking Reform: An Assessment of its Evolution and Possible Impact," CESifo Economic Studies, CESifo, vol. 52(2), pages 304-363, June.
    22. Vander Vennet, Rudi, 2002. "Cost and Profit Efficiency of Financial Conglomerates and Universal Banks in Europe," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 254-82, February.
    23. 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.
    24. Berg, Sigbjorn Atle & Forsund, Finn R & Jansen, Eilev S, 1992. " Malmquist Indices of Productivity Growth during the Deregulation of Norwegian Banking, 1980-89," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages S211-28, Supplemen.
    25. Hsiu-Ling Wu, 2007. "The impact of financial development and bank characteristics on the operational performance of commercial banks in the Chinese transitional economy," Journal of Economic Studies, Emerald Group Publishing, vol. 34(5), pages 401-414, December.
    26. Mester, Loretta J., 1996. "A study of bank efficiency taking into account risk-preferences," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 1025-1045, July.
    27. Chen, Zhuo & Song, Shunfeng, 2008. "Efficiency and technology gap in China's agriculture: A regional meta-frontier analysis," China Economic Review, Elsevier, vol. 19(2), pages 287-296, June.
    28. Altunbas, Yener & Liu, Ming-Hau & Molyneux, Philip & Seth, Rama, 2000. "Efficiency and risk in Japanese banking," Journal of Banking & Finance, Elsevier, vol. 24(10), pages 1605-1628, October.
    29. Oh, Dong-hyun, 2010. "A metafrontier approach for measuring an environmentally sensitive productivity growth index," Energy Economics, Elsevier, vol. 32(1), pages 146-157, January.
    30. Shujie Yao & Chunxia Jiang & Genfu Feng & Dirk Willenbockel, 2007. "WTO challenges and efficiency of Chinese banks," Applied Economics, Taylor & Francis Journals, vol. 39(5), pages 629-643.
    31. Christopher O’Donnell & D. Rao & George Battese, 2008. "Metafrontier frameworks for the study of firm-level efficiencies and technology ratios," Empirical Economics, Springer, vol. 34(2), pages 231-255, March.
    32. Víctor Moreira & Boris Bravo-Ureta, 2010. "Technical efficiency and metatechnology ratios for dairy farms in three southern cone countries: a stochastic meta-frontier model," Journal of Productivity Analysis, Springer, vol. 33(1), pages 33-45, February.
    33. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-66, September.
    34. Kontolaimou, Alexandra & Tsekouras, Kostas, 2010. "Are cooperatives the weakest link in European banking? A non-parametric metafrontier approach," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1946-1957, August.
    35. Fadzlan Sufian & Muzafar Shah Habibullah, 2009. "Non-traditional activities and bank efficiency: empirical evidence from the Chinese banking sector during the post-reform period," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 2(2), pages 107-132.
    36. Babu G. Baradwaj & Susan Flaherty & Joanne Li, 2008. "Are Chinese Banks Positioned to Compete in the Post-WTO Environment?," Chinese Economy, M.E. Sharpe, Inc., vol. 41(2), pages 56-75, March.
    37. Erh-Cheng Hwa & Yang Lei, 2010. "China's Banking Reform and Profitability," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 13(02), pages 215-236.
    38. George Battese & D. Rao & Christopher O'Donnell, 2004. "A Metafrontier Production Function for Estimation of Technical Efficiencies and Technology Gaps for Firms Operating Under Different Technologies," Journal of Productivity Analysis, Springer, vol. 21(1), pages 91-103, January.
    39. Dick Nanto & Radha Sinha, 2002. "China's Banking Reform," Post-Communist Economies, Taylor & Francis Journals, vol. 14(4), pages 469-493.
    Full references (including those not matched with items on IDEAS)

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

    When requesting a correction, please mention this item's handle: RePEc:wsi:rpbfmp:v:15:y:2012:i:04:p:1250024-1-1250024-25. 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: (Tai Tone Lim)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.