Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212901 
Year of Publication: 
2018
Series/Report no.: 
BOFIT Discussion Papers No. 16/2018
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
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 Big Five banks compared to other Chinese banks. It is almost entirely due to low persistent cost efficiency. Big Five 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.
JEL: 
C23
D24
G21
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-237-2
Document Type: 
Working Paper

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