Rational Cost Inefficiency in Chinese Banks

Kent Matthews, Zhiguo Xiao () and Xu Zhang
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Xu Zhang: Citigroup (China), Cardiff University

No 292009, Working Papers from Hong Kong Institute for Monetary Research

Abstract: According to a frequently cited finding by Berger et al (1993), X-inefficiency contributes 20% to cost-inefficiency in western banks. Empirical studies of Chinese banks tend to place cost-inefficiency in the region of 50%. Such estimates would suggest that Chinese banks suffer from gross cost inefficiency. Using a non-parametric bootstrapping method, this study decomposes cost-inefficiency in Chinese banks into X-inefficiency and allocative-inefficiency. It argues that allocative inefficiency is the optimal outcome of input resource allocation subject to enforced employment constraints. The resulting analysis suggests that allowing for rational allocative inefficiency; Chinese banks are no better or worse than their western counterparts.

Keywords: Bank Efficiency; China; X-inefficiency; DEA; Bootstrapping (search for similar items in EconPapers)
JEL-codes: D23 G21 G28 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2009-09
New Economics Papers: this item is included in nep-ban, nep-eff and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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