Cost efficiency in the Chinese banking sector : a comparison of parametric and non-parametric methodologies

Since the open door policy was embarked upon in 1979, China s banking sector has undergone gradual but notable reforms. A key objective of the reforms implemented by the Chinese government is to build an effective, competitive and stable banking system in order to improve its efficiency and reliability. This study employs both parametric stochastic frontier analysis (SFA) and non-parametric data envelopment analysis (DEA) methods to assess and evaluate the cost efficiency of Chinese banks over the period from 1994 until 2007, a period characterised by far-reaching changes brought about by the banking reforms. To this end, we first compare a number of specifications of stochastic cost frontier models to determine the preferred frontier model which are adopted in our efficiency analysis. The preferred model specification for our sample is the one stage SFA model that includes the traditional input prices, the outputs and the control variables (that is, equity, non-performing loans and the time trend) in the cost frontier and the environmental variables (that is, ownership structure, size, deregulation, market structure and market discipline) in the inefficiency term. Moreover, we also employ two cost DEA models (traditional DEA and New DEA) as a complement to the preferred SFA model for methodological cross-checking purposes. Similar to the previous empirical literature, we find that in most cases only moderate consistency across the different techniques. The cost efficiency of Chinese banks is found to be 91% on average, based on our SFA model, over the period from 1994 until 2007. Based on the results of the DEA and New DEA models, the average cost efficiency for Chinese banks over the sample period is about 89% and 87%, respectively. We find that Chinese banking efficiency has deteriorated after China s admission to the WTO, suggesting that the significant external environmental changes which arose from China s WTO entry may have had a negative impact on its banking efficiency. In addition, we find that the majority of Chinese banks reveal scale inefficiencies and as asset size increases, banks tend to pass from increasing, to constant, and then to decreasing returns to scale. Our findings also show that both state-owned banks and foreign banks are more efficient than domestic private banks and larger banks tend to be relatively more efficient than smaller banks. These and other results suggest that in order to enhance Chinese banking efficiency, the government needs to continue with the banking reform process and in particular, to open up banking markets, to improve risk management and corporate governance in Chinese banks and to encourage the expansion of banks.EThOS - Electronic Theses Online ServiceGBUnited Kingdo

Governance, efficiency and risk taking in Chinese banking

We employ a hand-collected unique dataset on banks operating in China between 2003 and 2011 to investigate the impact of board governance features (size, composition and functioning) on bank efficiency and risk taking. Our evidence suggests that board characteristics tend to have a greater influence on banks? profit and cost efficiency than on loan quality. We find that the proportion of female directors on the board appears not only to be linked to higher profit and cost efficiency but also to lower traditional banking risk. Similarly, board independence is associated with higher profit efficiency of banks; while the opposite is found for executive directors and in the presence of dual leadership of the CEO/chairperson. Among the control variables, we found that liquidity negatively affects profit and cost efficiency, while positively affecting risk. Interestingly, we find some evidence of an incremental effect of specific board characteristics on efficiency for banks with more concentrated ownership structures and state-owned institutions; while for banks with CEO performance-related pay schemes the effect on efficiency when significant is usually negative. Our results offer useful insights to policy makers in China charged with the task of improving the governance mechanisms in banking institutions

Athletes in boardrooms:Evidence from the world

International audienceThis study examines the relation between the athletic experience of board directors and corporate outcomes. We predict that athletes’ attributes, such as physical fitness, mental resilience, leadership, and team-working skills, enhance their monitoring role. Using a large sample from 71 countries, we find that athletic experience is associated with better firm performance. The benefits are more pronounced when the experience is of team sports and confrontational sports, and for firms experiencing financial crisis. The results remain consistent when we instrument the athletic experience of directors with the number of Olympic medals won and Olympic sports participated in by the country in question at the previous Olympic Games

Ownership structure and risk-taking:Comparative evidence from private and state-controlled banks in China

This study examines the impact of ownership structure on Chinese banks\u27 risk-taking behaviours. We classify the Chinese commercial banks into three categories based on the types of controlling shareholder, and find that banks controlled by the government (GCBs) tend to take more risks than those controlled by state-owned enterprises (SOECBs) or private investors (PCBs). This is attributed to the severe political intervention and weak incentives to follow prudent bank management practices for GCBs. We also find that the results are more pronounced among banks with concentrated ownership presumably because the large controlling power helps to enhance the monitoring of the management and promotes prudent operating procedures. Our findings have important implications for the ongoing reform in the Chinese banking sector

The residential coal consumption : disparity in urban-rural China

We appreciate the support of the Program for Major Projects in Philosophy and Social Science Research of the Ministry of Education of China (No. 14JZD031), Key Program of National Social Science Fund of China (No. 15AJY005), National Natural Science Foundation of China (Nos. 71473203, 71171001, and 71471001), and New Century Excellent Talents in University (No. NCET-12-0595).Peer reviewedPostprin

Evaluating the performance of Chinese commercial banks:A comparative analysis of different types of banks

This paper examines the cost and profit efficiency of four types of Chinese commercial banks over the period from 2002 to 2013. We find that the cost and profit efficiencies improved across all types of Chinese domestic banks in general and the banks are more profit-efficient than cost efficient. Foreign banks are the most cost efficient but the least profit efficient. The profit efficiency gap between foreign banks and domestic banks has widened after the World Trade Organization transition period (2007–2013). Ownership structure, market competition, bank size, and listing status are the main determinants of the efficiency of Chinese banks. We also find a causal relationship between efficiency and SROE by using the panel auto regression method. The evidence from the shadow return on equity (SROE) suggests that policy makers should be cautious of the adjustment costs imposed by the recapitalization process, which offsets the efficiency gains