Asset Diversification and Efficiency: Evidence from the Chinese Banking Sector

27 Pages Posted: 18 Aug 2016

See all articles by Kai Du

Kai Du

University of Adelaide

Andrew C. Worthington

Griffith University

Valentin Zelenyuk

University of Queensland

Date Written: August 18, 2016

Abstract

We investigate the impact of earning asset diversification on Chinese bank efficiency from 2006 to 2011. To do so, we adapt the Simar and Wilson (2007) (Journal of Econometrics) approach to panel data context so that approach allows for technology change over time. Regression results reveal that increasing the asset share of other earning assets (including securities and derivatives) is positively associated with bank efficiency. Decreasing the share of nonearning assets in total assets or increasing total equity has a similar impact. Our results also suggest that financial reforms currently being undertaken in China, including removing the regulatory requirement concerning the ratio of loans to deposits (a new draft amendment to the existing commercial banking law) and interest rate liberalization (a proposed draft amendment), are likely to induce a significant positive effect on bank efficiency in China.

Keywords: Asset diversification; Data envelopment analysis; Truncated regression; Bootstrapping; Chinese banks

JEL Classification: D21, C13, G21, C44

Suggested Citation

Du, Kai and Worthington, Andrew C. and Zelenyuk, Valentin, Asset Diversification and Efficiency: Evidence from the Chinese Banking Sector (August 18, 2016). 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2825787 or http://dx.doi.org/10.2139/ssrn.2825787

Kai Du (Contact Author)

University of Adelaide ( email )

No 233 North Terrace, School of Commerce
Adelaide, South Australia 5005
Australia

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)

Valentin Zelenyuk

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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