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

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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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File URL: http://patrickminford.net/wp/E2008_26.pdf
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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
Handle: RePEc:cdf:wpaper:2008/26
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Keywords: Bank Efficiency; China; X-inefficiency; DEA; Bootstrapping;

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

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  1. Peter Bogetoft & Jens Hougaard, 2003. "Rational Inefficiencies," Journal of Productivity Analysis, Springer, vol. 20(3), pages 243-271, November.
  2. David Hauner, 2005. "Explaining efficiency differences among large German and Austrian banks," Applied Economics, Taylor & Francis Journals, vol. 37(9), pages 969-980.
  3. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
  4. Laeven,Luc A., 1999. "Risk and efficiency in East Asian banks," Policy Research Working Paper Series 2255, The World Bank.
  5. Fengxia Dong & Allen Featherstone, 2006. "Technical and Scale Efficiencies for Chinese Rural Credit Cooperatives: A Bootstrapping Approach in Data Envelopment Analysis," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 4(1), pages 57-75.
  6. Tollison, Robert D, 1982. "Rent Seeking: A Survey," Kyklos, Wiley Blackwell, vol. 35(4), pages 575-602.
  7. 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.
  8. 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.
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Cited by:

  1. Kent Matthews & Xu Zhang & Jianguang Guo, 2009. "Nonperforming Loans and Productivity in Chinese Banks, 1997-2006," Chinese Economy, M.E. Sharpe, Inc., vol. 42(2), pages 30-47, March.
  2. Sunil Kumar, 2013. "Banking reforms and the evolution of cost efficiency in Indian public sector banks," Economic Change and Restructuring, Springer, vol. 46(2), pages 143-182, May.

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