Evaluating the Performance of Chinese Commercial Banks: A Comparative Analysis of Different Types of Banks

European Journal of Operational Research, Forthcoming

35 Pages Posted: 2 Aug 2014 Last revised: 24 Dec 2015

See all articles by Yizhe Dong

Yizhe Dong

University of Edinburgh Business School

Michael Firth

Lingnan University - Department of Finance and Insurance

Wenxuan Hou

University of Edinburgh - Business School; Shanghai Lixin University of Accounting and Finance

Weiwei Yang

University of Bedfordshire

Date Written: August 1, 2015

Abstract

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.

Keywords: Efficiency; Stochastic frontier analysis; Economies of scale; Shadow return on equity; Chinese banking

JEL Classification: G21, G28, P34

Suggested Citation

Dong, Yizhe and Firth, Michael and Hou, Wenxuan and Yang, Weiwei, Evaluating the Performance of Chinese Commercial Banks: A Comparative Analysis of Different Types of Banks (August 1, 2015). European Journal of Operational Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2474749 or http://dx.doi.org/10.2139/ssrn.2474749

Yizhe Dong

University of Edinburgh Business School ( email )

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

Michael Firth (Contact Author)

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Wenxuan Hou

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

HOME PAGE: http://www.wenxuanhou.com

Shanghai Lixin University of Accounting and Finance ( email )

Weiwei Yang

University of Bedfordshire ( email )

Vicarage St
Luton, LU1 3JU
United Kingdom

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