Persistent and Transient Inefficiency: Explaining the Low Efficiency of Chinese Big Banks

Zuzana Fungáčová, Paul-Olivier Klein and Laurent Weill
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Paul-Olivier Klein: University of Aberdeen Business School

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

Abstract: Considering the evidence that China’s five largest state-owned banks (the Big Five) suffer from low cost efficiency, this paper decomposes overall efficiency of Chinese banks into persistent efficiency and transient efficiency components. Low persistent efficiency reflects structural problems, while low transient efficiency is associated with short-term problems. Using the model of Kumbhakar, Lien and Hardaker (2014) based on the stochastic frontier approach, we measure persistent efficiency and transient efficiency for a large sample of 166 Chinese banks over the period 2008–2015. In line with existing evidence, we find a lower average cost efficiency of the Big Five banks compared to other Chinese banks. It is almost entirely due to low persistent cost efficiency. The Big Five banks transient efficiency is similar to other Chinese banks. Our findings support the view that major structural reforms are needed to enhance the efficiency of China’s Big Five banks.

Keywords: banks; efficiency; China. Classification-JEL C23; D24; G21. (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ban, nep-cna, nep-eff and nep-tra
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Related works:
Working Paper: Persistent and transient inefficiency: Explaining the low efficiency of Chinese big banks (2020)
Working Paper: Persistent and transient inefficiency: Explaining the low efficiency of Chinese big banks (2018)
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