Technical Efficiency Measurement Incorporating Risk Preferences: An Empirical Analysis of Chinese Commercial Banks

Ning Zhu, Bing Wang, Zhiqian Yu and Yanrui Wu

Emerging Markets Finance and Trade, 2016, vol. 52, issue 3, 610-624

Abstract: By adjusting direction vectors, we are able to measure technical efficiency incorporating risk preference of individual banks using non-parametric and parametric approaches. Furthermore, we explore categories of commercial banks by comparing their risk preferences to the risk preference that optimizes technical efficiency. Three results emerged. First, technical efficiency scores of joint stock and city commercial banks surpassed those of state-owned commercial banks under the optimal risk preference, and technical efficiency generally improved over time. Second, the preference for risk balance was optimal for achieving technical efficiency. Third, a larger proportion of state-owned and joint stock commercial banks fall into the preference for risk neutral category than city commercial banks.

Date: 2016
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DOI: 10.1080/1540496X.2015.1008889

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