Market development and bank profit efficiency in China: application of the generalized Malmquist productivity index

Jianhua Zhang, Baozhi Qu, Zhong Xu and Peng Wang

Asia-Pacific Journal of Accounting & Economics, 2012, vol. 19, issue 2, 181-197

Abstract: We study the total factor productivity of Chinese banks (the generalized Malmquist productivity index) and the impact of market development on bank profit efficiency using a unique sample of 150 Chinese commercial banks for the 1999–2008 period. Employing an output-oriented stochastic distance function approach, our analysis shows that the productivity growth of Chinese banks over time can be attributed mainly to improvements in technical efficiency and technical change. In addition, the efficiency of Chinese banks is heavily influenced by market development variables, including the proportion of non-state business, level of government intervention in the market, competition in the financial industry and competition in credit allocation. The effects of these factors on bank profit efficiency differ depending on the type of banks.

Date: 2012
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DOI: 10.1080/16081625.2012.667380

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