IDEAS home Printed from https://ideas.repec.org/p/wyi/wpaper/002316.html
   My bibliography  Save this paper

Evaluating the Effectiveness of China's Financial Reform The Efficiency of China's Domestic Banks

Author

Listed:
  • Cheng Hsiao
  • Yan Shen
  • Wenlong Bian

Abstract

This paper estimates the cost and pro t e¢ ciency of Chinese domestic banking sector to evaluate the e¤ectiveness of Chinas nancial reforms since 1978. We use the performance of foreign banks as the benchmark because for- eign banks, subject to intensive worldwide competition, are perceived as pos- sessing superior governing structure and organization, more advanced technolo- gies and better trained labor force. On the other hand, competition in Chinas banking sector is mainly in the form of nonprice measures, thus putting foreign banks at a disadvantage. We nd domestic banks have gradually caught up the cost advantage of foreign banks in a manner consistent with the increased com- petitive pressure. On the other hand, the pro t advantage of domestic banks over foreign banks is widening because of institutional arrangements, cultural and social networks as well as the pro t scope and revenue scale economy.

Suggested Citation

  • Cheng Hsiao & Yan Shen & Wenlong Bian, 2016. "Evaluating the Effectiveness of China's Financial Reform The Efficiency of China's Domestic Banks," Working Papers 2016-02-21, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
  • Handle: RePEc:wyi:wpaper:002316
    as

    Download full text from publisher

    File URL: https://econpub.xmu.edu.cn/research/repec/upload/201602211455391894.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Pulley, Lawrence B & Braunstein, Yale M, 1992. "A Composite Cost Function for Multiproduct Firms with an Application to Economies of Scope in Banking," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 221-230, May.
    2. Lozano-Vivas, Ana & Pasiouras, Fotios, 2010. "The impact of non-traditional activities on the estimation of bank efficiency: International evidence," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1436-1449, July.
    3. H. Steve Ching & Cheng Hsiao & Shui Ki Wan & Tongsan Wang, 2011. "Economic Benefits Of Globalization: The Impact Of Entry To The Wto On China'S Growth," Pacific Economic Review, Wiley Blackwell, vol. 16(3), pages 285-301, August.
    4. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
    5. Akhigbe, Aigbe & McNulty, James E., 2003. "The profit efficiency of small US commercial banks," Journal of Banking & Finance, Elsevier, vol. 27(2), pages 307-325, February.
    6. Berger, Allen N. & Hasan, Iftekhar & Zhou, Mingming, 2010. "The effects of focus versus diversification on bank performance: Evidence from Chinese banks," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1417-1435, July.
    7. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    8. H. Semih Yildirim & George Philippatos, 2007. "Efficiency of Banks: Recent Evidence from the Transition Economies of Europe, 1993-2000," The European Journal of Finance, Taylor & Francis Journals, vol. 13(2), pages 123-143.
    9. Chang, C. & Liao, G. & Yu, X. & Ni, Z., 2009. "Information from Relationship Lending : Evidence from China," Other publications TiSEM 9ef448b0-b647-4a71-96e9-5, Tilburg University, School of Economics and Management.
    10. Cheng Hsiao & H. Steve Ching & Shui Ki Wan, 2012. "A Panel Data Approach For Program Evaluation: Measuring The Benefits Of Political And Economic Integration Of Hong Kong With Mainland China," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(5), pages 705-740, August.
    11. Jiang, Chunxia & Yao, Shujie & Zhang, Zongyi, 2009. "The effects of governance changes on bank efficiency in China: A stochastic distance function approach," China Economic Review, Elsevier, vol. 20(4), pages 717-731, December.
    12. Chun Chang & Guanmin Liao & Xiaoyun Yu & Zheng Ni, 2014. "Information from Relationship Lending: Evidence from Loan Defaults in China," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(6), pages 1225-1257, September.
    13. Kumbhakar, Subal C., 1990. "Production frontiers, panel data, and time-varying technical inefficiency," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 201-211.
    14. repec:zbw:bofitp:2014_009 is not listed on IDEAS
    15. James J. Heckman & Vytlacil, Edward J., 2007. "Econometric Evaluation of Social Programs, Part I: Causal Models, Structural Models and Econometric Policy Evaluation," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 70, Elsevier.
    16. Wang, Hung-Jen & Ho, Chia-Wen, 2010. "Estimating fixed-effect panel stochastic frontier models by model transformation," Journal of Econometrics, Elsevier, vol. 157(2), pages 286-296, August.
    17. Saiying (Esther) Deng & Elyas Elyasiani, 2008. "Geographic Diversification, Bank Holding Company Value, and Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(6), pages 1217-1238, September.
    18. Joshua D. Angrist & Jörn-Steffen Pischke, 2014. "Mastering ’Metrics: The Path from Cause to Effect," Economics Books, Princeton University Press, edition 1, number 10363.
    19. Sickles, Robin C. & Good, David & Johnson, Richard L., 1986. "Allocative distortions and the regulatory transition of the U.S. airline industry," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 143-163.
    20. Xu, Lei & Lin, Chien-Ting, 2007. "Can Chinese banks compete after accession to WTO?," Journal of Asian Economics, Elsevier, vol. 18(6), pages 883-903, December.
    21. Fu, Xiaoqing (Maggie) & Heffernan, Shelagh, 2007. "Cost X-efficiency in China's banking sector," China Economic Review, Elsevier, vol. 18(1), pages 35-53.
    22. Berger, Allen N. & Hasan, Iftekhar & Zhou, Mingming, 2009. "Bank ownership and efficiency in China: What will happen in the world's largest nation?," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 113-130, January.
    23. Forsund, Finn R. & Lovell, C. A. Knox & Schmidt, Peter, 1980. "A survey of frontier production functions and of their relationship to efficiency measurement," Journal of Econometrics, Elsevier, vol. 13(1), pages 5-25, May.
    24. Chun‐Yu Ho, 2015. "Switching Cost And Deposit Demand In China," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(3), pages 723-749, August.
    25. Leung, M.K. & Chan, Ricky Y.K., 2006. "Are foreign banks sure winners in post-WTO China?," Business Horizons, Elsevier, vol. 49(3), pages 221-234.
    26. repec:zbw:bofitp:2010_004 is not listed on IDEAS
    27. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-374, October.
    28. Stiroh, Kevin J., 2006. "A Portfolio View of Banking with Interest and Noninterest Activities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1351-1361, August.
    29. Ariff, Mohamed & Can, Luc, 2008. "Cost and profit efficiency of Chinese banks: A non-parametric analysis," China Economic Review, Elsevier, vol. 19(2), pages 260-273, June.
    30. Sturm, Jan-Egbert & Williams, Barry, 2004. "Foreign bank entry, deregulation and bank efficiency: Lessons from the Australian experience," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1775-1799, July.
    31. Good, David H. & Roller, Lars-Hendrik & Sickles, Robin C., 1995. "Airline efficiency differences between Europe and the US: Implications for the pace of EC integration and domestic regulation," European Journal of Operational Research, Elsevier, vol. 80(3), pages 508-518, February.
    32. Ahn, Seung Chan & Hoon Lee, Young & Schmidt, Peter, 2001. "GMM estimation of linear panel data models with time-varying individual effects," Journal of Econometrics, Elsevier, vol. 101(2), pages 219-255, April.
    33. 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.
    34. Jushan Bai, 2009. "Panel Data Models With Interactive Fixed Effects," Econometrica, Econometric Society, vol. 77(4), pages 1229-1279, July.
    35. Yin, Haiyan & Yang, Jiawen & Mehran, Jamshid, 2013. "An empirical study of bank efficiency in China after WTO accession," Global Finance Journal, Elsevier, vol. 24(2), pages 153-170.
    36. Hou, Xiaohui & Wang, Qing & Zhang, Qi, 2014. "Market structure, risk taking, and the efficiency of Chinese commercial banks," Emerging Markets Review, Elsevier, vol. 20(C), pages 75-88.
    37. Clark, Jeffrey A & Siems, Thomas F, 2002. "X-Efficiency in Banking: Looking beyond the Balance Sheet," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 987-1013, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chen, Zhongfei & Matousek, Roman & Wanke, Peter, 2018. "Chinese bank efficiency during the global financial crisis: A combined approach using satisficing DEA and Support Vector Machines☆," The North American Journal of Economics and Finance, Elsevier, vol. 43(C), pages 71-86.
    2. Chen, Zhongfei & Wanke, Peter & Tsionas, Mike G., 2018. "Assessing the strategic fit of potential M&As in Chinese banking: A novel Bayesian stochastic frontier approach," Economic Modelling, Elsevier, vol. 73(C), pages 254-263.
    3. Yongyuan Ma & Ao Shen & Qingyuan Zhu & Peng Wang, 2022. "Media environment, venture capital, and technological innovation: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 1734-1747, September.
    4. Zhang, Longyao & Hsu, Sara & Xu, Zhong & Cheng, Enjiang, 2020. "Responding to financial crisis: Bank credit expansion with Chinese characteristics," China Economic Review, Elsevier, vol. 61(C).
    5. Xie, Qiwei & Xu, Qifan & Chen, Lifan & Jin, Xi & Li, Siqi & Li, Yongjun, 2022. "Efficiency evaluation of China's listed commercial banks based on a multi-period leader-follower model," Omega, Elsevier, vol. 110(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dong, Yizhe & Firth, Michael & Hou, Wenxuan & Yang, Weiwei, 2016. "Evaluating the performance of Chinese commercial banks: A comparative analysis of different types of banks," European Journal of Operational Research, Elsevier, vol. 252(1), pages 280-295.
    2. Chen, Zhongfei & Matousek, Roman & Wanke, Peter, 2018. "Chinese bank efficiency during the global financial crisis: A combined approach using satisficing DEA and Support Vector Machines☆," The North American Journal of Economics and Finance, Elsevier, vol. 43(C), pages 71-86.
    3. Ramiz ur Rehman & Junrui Zhang & Muhammad Akram Naseem & Muhammad Ishfaq Ahmed & Rizwan Ali, 2021. "Board independence and Chinese banking efficiency: a moderating role of ownership restructuring," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(3), pages 517-536, September.
    4. Mai, Nhat Chi, 2015. "Efficiency of the banking system in Vietnam under financial liberalization," OSF Preprints qsf6d, Center for Open Science.
    5. Wang, Ke & Huang, Wei & Wu, Jie & Liu, Ying-Nan, 2014. "Efficiency measures of the Chinese commercial banking system using an additive two-stage DEA," Omega, Elsevier, vol. 44(C), pages 5-20.
    6. Vaneet Bhatia & Sankarshan Basu & Subrata Kumar Mitra & Pradyumna Dash, 2018. "A review of bank efficiency and productivity," OPSEARCH, Springer;Operational Research Society of India, vol. 55(3), pages 557-600, November.
    7. Huang, Tai-Hsin & Lin, Chung-I & Chen, Kuan-Chen, 2017. "Evaluating efficiencies of Chinese commercial banks in the context of stochastic multistage technologies," Pacific-Basin Finance Journal, Elsevier, vol. 41(C), pages 93-110.
    8. Jiang, Chunxia & Yao, Shujie & Feng, Genfu, 2013. "Bank ownership, privatization, and performance: Evidence from a transition country," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3364-3372.
    9. Qichang Ye & Zongling Xu & Dan Fang, 2012. "Market structure, performance, and efficiency of the Chinese banking sector," Economic Change and Restructuring, Springer, vol. 45(4), pages 337-358, November.
    10. Wu, Meiqin & Li, Changhong & Fan, Jianping & Wang, Xiangyu & Wu, Zhenyu, 2018. "Assessing the global productive efficiency of Chinese banks using the cross-efficiency interval and VIKOR," Emerging Markets Review, Elsevier, vol. 34(C), pages 77-86.
    11. Sunil Mohanty & Hong-Jen Lin, 2021. "Efficiency in China’s Banking Sector: A Comparative Analysis of Pre- and Post-Basel II Eras," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 24(02), pages 1-29, June.
    12. Francesco Aiello & Graziella Bonanno, 2018. "On The Sources Of Heterogeneity In Banking Efficiency Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 32(1), pages 194-225, February.
    13. Le, Phuong Thanh & Harvie, Charles & Arjomandi, Amir & Borthwick, James, 2019. "Financial liberalisation, bank ownership type and performance in a transition economy: The case of Vietnam," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    14. Klein, Nadja & Herwartz, Helmut & Kneib, Thomas, 2020. "Modelling regional patterns of inefficiency: A Bayesian approach to geoadditive panel stochastic frontier analysis with an application to cereal production in England and Wales," Journal of Econometrics, Elsevier, vol. 214(2), pages 513-539.
    15. Zuzana FUNGACOVA & Paul-Olivier KLEIN & Laurent WEILL, 2018. "Persistent and Transient Inefficiency: Explaining the Low Efficiency of Chinese Big Banks," Working Papers of LaRGE Research Center 2018-07, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    16. Dong, Yizhe & Girardone, Claudia & Kuo, Jing-Ming, 2017. "Governance, efficiency and risk taking in Chinese banking," The British Accounting Review, Elsevier, vol. 49(2), pages 211-229.
    17. Francesco Aiello & Graziella Bonanno, 2016. "Efficiency in banking: a meta-regression analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(1), pages 112-149, January.
    18. Zuzana FUNGACOVA & Paul-Olivier KLEIN & Laurent WEILL, 2018. "Persistent and Transient Inefficiency: Explaining the Low Efficiency of Chinese Big Banks," Working Papers of LaRGE Research Center 2018-07, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    19. Fungáčová, Zuzana & Klein, Paul-Olivier & Weill, Laurent, 2020. "Persistent and transient inefficiency: Explaining the low efficiency of Chinese big banks11We thank Ifthekar Hasan, Chun-Yu Ho, Iikka Korhonen, Jun Wu, Yanrui Wu, the participants of the Conference on," China Economic Review, Elsevier, vol. 59(C).
    20. Dong Xiang & Parmendra Sharma & Yuming Zhang, 2019. "The Global Financial Crisis, Fiscal Stimulus Package and the Chinese Banking Sector — A Pre- and Post-Efficiency Analysis," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(02), pages 1-43, June.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wyi:wpaper:002316. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: WISE Technical Team (email available below). General contact details of provider: https://www.wise.xmu.edu.cn/english/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.