Essays on Benchmarking and Shadow Pricing

In the first chapter, we examine the performance of Chinese commercial banks before, during, and after the 2008 global financial crisis and the 2008--2010 China\u27s 4 trillion Renminbi stimulus plan. Fully nonparametric methods are used to estimate technical efficiencies. Recently-developed statistical results are used to test for changes in efficiencies as well as productivity over time, and to test for changes in technology over time. We also test for differences in efficiency and productivity between big and small banks, and between domestic and foreign banks. We find evidence of the non-convexity of banks\u27 production set. The data reveal that technical efficiency declined at the start of the global financial crisis (2007--2008) and after the China\u27s stimulus plan (2010--2011), but recovered in the years later (2011--2013), and declined again from 2013 to 2014, ending lower in 2014 than in 2007. We find that productivity declined during and just after the China\u27s stimulus plan (2009--2011), but recovered in the years later (2013--2014), ending lower in 2014 than in 2007. We also find that the technology shifted downward from 2012 to 2013, and then shifted upward from 2013 to 2014. Over the period 2007--2014, technology shifted upward. We provide evidence that in general big banks were more efficient and productive than small banks. Finally, domestic banks had higher efficiency and productivity than foreign banks over this period except in 2008. In the second chapter, I estimate shadow price of equity for U.S. commercial banks over 2001--2018 using nonparametric estimators of the underlying cost frontier and tests the existence of ``Too-Big-to-Fail\u27\u27 (TBTF) banks. Evidence on the existence of TBTF banks are found. Specifically, I find that a negative correlation exists between the shadow price of equity and the size of banks in each year, suggesting that big banks pay less in equity than small banks. In addition, in each year there are more banks with a negative shadow price of equity in the fourth quartile based on total assets than in the other three quartiles. The data also reveal that for each year, the estimated mean shadow price of equity for the top $100$ largest banks is smaller than the mean price of deposits, even though equity is commonly viewed as a riskier asset than deposits. Finally, I find that the top $10$ largest banks are willing to pay much more at the start of the global financial crisis and after the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 than the other periods. These results imply that these regulations are effective in reducing the implicit subsidy, at least for the top $10$ largest banks. However, it is also evident that the recapitalization has imposed significant equity funding costs for the top $10$ largest banks. In the third chapter, we examine the performance of 144 countries in the world before, during, and after the 2007--2012 global financial crisis. Fully nonparametric methods are used to estimate technical efficiencies. Recently-developed statistical results are used to test for changes in efficiencies as well as productivity over time, and to test for changes in technology over time. We also test for these differences between developing and developed countries. We find evidence of the non-convexity of countries\u27 production set. The data revealed that technical efficiency declined at the start of the global financial crisis (2006--2008), but recovered in the years later (2008--2014), ending higher in 2014 than in 2004. We also find that mean productivity continued decreasing from 2004 to 2010. Moreover, productivity in 2004 stochastic dominants in the first order that in 2014. Statistical tests indicate that the frontier continued shifting downward from 2004 to 2010, and then continued shifting upward from 2010 to 2014. Overall, the technology has shifted downward from 2004 to 2014. Finally, we provide evidence that developing economies have lower technical efficiency but higher productivity than developed economies over this period

Impact of the global financial crisis 2008 on bank efficiency : an experience of the Anglo-Saxon countries : a thesis presented in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Banking Studies at Massey University, Manawatu Campus, New Zealand

This thesis investigates the differences in the impact of the Global Financial Crisis 2008 (GFC) on the banking sectors of Australia, Canada, New Zealand, UK, and the United States from 2003 to 2015. The selected banking sectors are based on a common Anglo-Saxon banking system and belong to developed economies for which the GFC showed varying degrees of severity. The measures of cost, profit, alternative profit, and shareholder value efficiency are used to assess the impact of the GFC on bank efficiency of the five countries. The aim of this study is achieved with four major objectives: first, the theoretical analysis of the varying impact of the GFC on the banking sectors of the developed and integrated economies is confirmed with econometric analyses; second, the impact of different banking environment variables on bank efficiency is assessed to identify the reasons behind the variation in the impact of the GFC on the efficiency of the selected banking sectors; third, this study compares the results for the U.S. banking sector with other developed economies using a common frontier; fourth, it assesses the change in banking risk, structure, and shareholder value during the study period. A common frontier is drawn with a one-stage Stochastic Frontier Analysis (SFA) model among the selected group of relatively homogenous economies, and remaining economic variations are controlled with banking environment variables. A group of 29 large and systemically important banks is selected from all five countries for this study. The empirical results confirm the superiority of the Australian and Canadian banking sectors in cost efficiency compared to New Zealand, UK, and U.S. sectors from 2003 to 2015. Profit efficiency of the U.S. and British banks is most negatively impacted by the GFC, and the banking sectors of Australia, Canada, and New Zealand are among the least impacted. A significant impact of the GFC is observed during 2008 and 2009, and the selected banking sectors are not able to achieve pre-GFC efficiency levels in the post-GFC period. Cost-efficient banking is found to be more resilient, and the level of bank liquidity and equity play a vital role in the stability of the banks during the crisis period. The level of risk has declined over the study period, however, the negative influence of the risk on bank efficiency is reported. A higher ratio of lending assets provided earning stability for banks during the crisis period. Bank size, market concentration, and population density of chosen economies are not favorable for bank efficiency. Shareholder value was also impacted by the GFC during the same period and was found to be closely associated with the profit efficiencies of the banks during the study period. The trend and scores of the selected four efficiency models are consistent over the study period and found to be robust to various alternative tests. The findings of this thesis support the enhanced standards of the bank liquidity and equity, however, we recommend some regulatory initiatives to lower regulatory cost, bank size, and market concentration of selected banking sectors. A few limitations of the thesis are identified, and some guidelines for future research are also provided