Cost X-efficiency in China's banking sector [An article from: China Economic Review]

This digital document is a journal article from China Economic Review, published by Elsevier in 2007. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
Employing the stochastic frontier approach, this paper investigates cost X-efficiency in China's banking sector over the period 1985-2002. The objective is to assess whether different ownership types and banking reforms affect X-efficiency. A two-stage regression model is estimated to identify the significant variables influencing X-efficiency. Overall, the results show that banks are operating 40-60% below the X-efficiency frontier. On average, the joint-stock banks are found to be more X-efficient than the state-owned commercial banks, but individual scores present a far more complex picture. It appears that X-efficiency was higher during the first phase of bank reform. Recent policies aimed at increased privatisation, greater foreign bank participation, and liberalised interest rates should help to improve the cost X-efficiency of China's banks.