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Rational Cost Inefficiency in Chinese Banks

Kent Matthews (), Zhiguo Xiao () and Xu Zhang

No E2009/13, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

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)
New Economics Papers: this item is included in nep-eff and nep-tra
Date: 2009-09
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