Cost Efficiency of the Chinese Banking Sector: A Comparison of Stochastic Frontier Analysis and Data Envelopment Analysis

39 Pages Posted: 5 Jan 2015

See all articles by Yizhe Dong

Yizhe Dong

University of Edinburgh Business School

Robert Hamilton

Loughborough University - Business School

Mark J. Tippett

Loughborough University - Business School; University of Exeter Business School

Date Written: October 16, 2002

Abstract

This paper investigates the consistency of efficiency scores obtained from the stochastic frontier analysis and data envelopment analysis methods. We estimate cost efficiency and economies of scale based on an unbalanced panel data set of Chinese banks over the period 1994 to 2007. The results suggest moderate consistency between parametric and non-parametric frontier methods in efficiency scores rankings, identification of best and worst practice banks, the stability of efficiency scores over time and correlation between frontier efficiency and accounting based performance measures. Based on the findings, we conclude that the use of multiple frontier techniques for efficiency analysis is to be strongly recommended and that this methodological cross-checking analysis will result in more robust and convincing assessments of bank performance.

Keywords: Cost efficiency; Stochastic frontier analysis; Data envelope analysis; Chinese banking

JEL Classification: D24, G21

Suggested Citation

Dong, Yizhe and Hamilton, Robert and Tippett, Mark J., Cost Efficiency of the Chinese Banking Sector: A Comparison of Stochastic Frontier Analysis and Data Envelopment Analysis (October 16, 2002). Available at SSRN: https://ssrn.com/abstract=2341056 or http://dx.doi.org/10.2139/ssrn.2341056

Yizhe Dong (Contact Author)

University of Edinburgh Business School ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

Robert Hamilton

Loughborough University - Business School ( email )

Ashby Road
Loughborough
Nottingham NG1 4BU, LE11 3TU
Great Britain

Mark J. Tippett

Loughborough University - Business School ( email )

Ashby Road
Loughborough
Nottingham NG1 4BU, LE11 3TU
Great Britain

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

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