Do capital requirements affect cost efficiency? Evidence from China

Pierre Pessarossi and Laurent Weill

Journal of Financial Stability, 2015, vol. 19, issue C, 119-127

Abstract: This paper contributes to the debate on the effect of capital requirements on cost efficiency. We study the relation between capital ratio and cost efficiency for Chinese banks over the period 2004–2009, taking advantage of the profound regulatory changes in capital requirements that occurred during this period to measure the exogenous impact of an increase in the capital ratio on banks’ cost efficiency. We find that such an increase has a positive effect on cost efficiency, the size of which depends to an extent on the bank's ownership type. Our results therefore suggest that capital requirements can improve cost efficiency.

Keywords: Bank; Capital requirements; Efficiency; China (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:19:y:2015:i:c:p:119-127

DOI: 10.1016/j.jfs.2014.11.002

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