Investigating the performance of Chinese banks over 2007–2014

• Published in: Annals of operations research 2023-02, Vol.321 (1-2), p.663-692
• Main Authors: Wilson, Paul W., Zhao, Shirong
• Format: Article
• Language: English
• Subjects: Banks; Business and Management; Combinatorics; Commercial banks; Convexity; Economic crisis; Efficiency; Industrial efficiency; Industrial productivity; Nonparametric statistics; Operations research; Operations Research/Decision Theory; Original Research; Productivity; Theory of Computation
• ISSN: 0254-5330; 1572-9338
• DOI: 10.1007/s10479-022-04925-8

This paper examines the performance of Chinese commercial banks before, during and after the 2007–2008 global financial crisis and China’s 4 trillion renminbi stimulus plan during 2008–2010. Fully nonparametric methods are used to estimate technical efficiencies. Recently-developed statistical results are used to test for changes in efficiencies as well as productivity over time, and to test for changes in technology over time. We also test for differences in efficiency and productivity between big and small banks, and between domestic and foreign banks. We find evidence of non-convexity of banks’ production set. Our results suggest that technical efficiency declined at the start of the global financial crisis and again during 2011–2012 after enactment of the stimulus plan. Although efficiency recovered somewhat during 2013–2014, China’s banks ended with lower technical efficiency on average in 2014 than in 2007. We find that productivity declined during 2008–2009, increased during 2013–2014, but as with efficiency ended lower on average in 2014 than in 2007. We find compelling evidence that big banks were more efficient than small banks throughout 2007–2014, and in most years also were more productive. Finally, domestic banks were on average more efficient than foreign banks in 2007, but foreign banks were more efficient than domestic banks in 2014. Similarly, foreign banks were on average more productive than domestic banks in 2007, but less productive than domestic banks in 2012–2014.