Advances in Management and Applied Economics

Measuring Changes in Chinese Banking Productivity and Profitability

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  • Abstract

     

    This paper adopts the Hicks-Moorstein (HM) TFP index and Data Envelopment Analysis (DEA) to explore efficiency and its relation to changes in profitability and productivity in Chinese commercial banks (CBs). We decompose the HM TFP index into changes in technology, pure technical efficiency, scale efficiency, and output mix and then test for distribution differences when comparing the Malmquist and Hicks-Moorstein productivity indices for a given type of data. The study results reveal that the CBs experience primarily an increment of mix-efficiency rather than an improvement in pure technical efficiency (improvement in management practices) and that Chinese CBs pursue technological progress to meet the requirements for financial innovation and internet banking. This paper highlights the importance of analyzing performance from multiple perspectives and provides alternative explanations of improving productivity and profitability based on technical efficiency in general. Our results indicate that including non-performing loans as the input increases the efficiency score, but off-balance sheet items do not have a significant impact.

     

    JEL classification numbers: D24, E58, G24.

    Keywords: Trading Conditions, Hicks-Moorsteen(HM) TFP index, Data Envelopment Analysis (DEA), Productivity, Profitability.