Cost X-Efficiency in China's Banking Sector
Cass Faculty of Finance Working Paper No. WP-FF-14-2005
24 Pages Posted: 19 May 2006
Date Written: 2005
Employing the stochastic frontier approach, this paper investigates cost X-efficiency in China's banking sector over the period 1985-2002. The objective is to assess whether different ownership types and banking reforms affect X-efficiency. A two-stage regression model is estimated to identify the significant variables influencing X-efficiency. The results show that on average, banks are operating 50-60% below the X-efficiency frontier. The jointstock banks are found to be more X-efficient than the state-owned commercial banks, and it appears that X-efficiency was higher during the first phase of bank reform.
Keywords: Stochastic frontier analysis, cost X-efficiency, bank reforms, joint stock banks
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