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Bank Reforms, Competition and Efficiency in China's Banking System: Are Small City Bank Entrants More Efficient?
Author(s) -
Lin HuiLin,
Tsao ChiaChi,
Yang ChihHai
Publication year - 2009
Publication title -
china and world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.815
H-Index - 28
eISSN - 1749-124X
pISSN - 1671-2234
DOI - 10.1111/j.1749-124x.2009.01167.x
Subject(s) - accession , inefficiency , competition (biology) , frontier , stochastic frontier analysis , china , panel data , financial system , business , chinese financial system , international economics , economics , market economy , european union , macroeconomics , econometrics , ecology , history , archaeology , production (economics) , political science , law , biology
This paper analyzes technical efficiency in China's banking system by large banks and small city banks as well as the pre‐WTO and post‐WTO accession periods. Using an unbalanced panel dataset for 63 banks over 1997–2006 and employing the stochastic frontier function approach, the empirical results reveal that the new entrants, small city banks, experienced a slightly higher efficiency score than incumbent large banks, on average. Compared with the pre‐WTO accession period, the efficiency score is found to have improved significantly after entry into the WTO as a result of the competition effect. This competition effect is particularly relevant for small city banks. Finally, determinants of X‐inefficiency are examined.