Efficiency in the Highly Market-Segmented Chinese Banking Sector: A Meta-Frontier Non-Radial Directional Distance Function Approach

33 Pages Posted: 17 Feb 2015

See all articles by Dong Xiang

Dong Xiang

Shandong Normal University; SDNU

Ning Zhang

Jiangxi University of Finance and Economics

Andrew C. Worthington

Griffith University

Multiple version iconThere are 3 versions of this paper

Date Written: February 13, 2015

Abstract

In this paper, we apply the so-called meta-frontier non-radial directional distance function approach to the performance analysis of 143 Chinese banks over the period 2006–13. We find that relative to the group frontier in each market segment, the Big-5 Chinese banks exhibit good efficiency. However, their low meta-technology ratios indicate that they are currently unable to make full use of their technological potential to achieve higher economic goals such as cost-cutting and full profit-maximization. As befits their ownership structure, the joint stock commercial banks display the best technical efficiency. Further, the low efficiency scores and high meta-technology ratios demonstrate that the city commercial banks may serve as the primary implementation channels of local policies, particularly those concerning fixed investment. While still at the start-up stage in China, foreign banks display the highest meta-technology ratios, suggesting they possess the best bank operating environments. Finally, over the sample period, Chinese banks in general exhibit a stable and increasing level of technical efficiency, save a very small decline during the 2008 global financial crisis, whereas cost and profit efficiency exhibit significant fluctuation.

Keywords: Meta frontier analysis, Non-radial directional distance function, banks, China, determinants of efficiency

JEL Classification: C23, D24, G21

Suggested Citation

Xiang, Dong and Zhang, Ning and Worthington, Andrew C., Efficiency in the Highly Market-Segmented Chinese Banking Sector: A Meta-Frontier Non-Radial Directional Distance Function Approach (February 13, 2015). Available at SSRN: https://ssrn.com/abstract=2564435 or http://dx.doi.org/10.2139/ssrn.2564435

Dong Xiang (Contact Author)

Shandong Normal University ( email )

1 Daxue Rd
Jinan, Shandong 250353
China

SDNU ( email )

Jinan
China

Ning Zhang

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

Andrew C. Worthington

Griffith University ( email )

170 Kessels Road
Nathan, Queensland 4111
Australia
+61 (0)7 3735 4273 (Phone)
+61 (0)7 3735 3719 (Fax)

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