Publication Status

Published

Document Type

Journal article

Department / Unit

Department of Finance and Insurance

Journal Title

European Journal of Operational Research

Publication Date

7-1-2016

Language

English

Volume

252

First Page

280

Last Page

295

Keywords

Chinese banking, Efficiency, Finance, Shadow return on equity, Stochastic frontier analysis

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.

DOI

10.1016/j.ejor.2015.12.038

Scopus EID

84961313168

ISSN

0377-2217

Fulltext file version

Accepted author manuscript

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Comment

We thank the editor and two anonymous reviewers for helpful comments on a previous version of the paper. Firth acknowledges the support of a grant from the HKSAR Government (GRFLU340412)

Pure ID

10984719

Pure UUID

f05e6e35-f2b5-4aa5-9ade-c8e5f2675070

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