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The impact of financial technology on China’s banking industry: An application of the metafrontier cost Malmquist productivity index

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  • Cho, Tsui-Yueh
  • Chen, Yi-Shuan

Abstract

Technology advancements have increased the hopes of banks around the world in terms of securing a prominent place in global finance. The Chinese government explicitly regards the development of financial technology (Fintech) as an essential strategy for improving banking performance. However, the debate on the impact of costly Fintech innovation on Chinese banking performance has not been resolved. This study therefore applies the data envelopment analysis (DEA) approach to define the metafrontier cost Malmquist productivity index (CMM) under variable returns to scale (VRS) in order to analyze the factors and identify the sources of changes in cost-side productivity and their economic implications. The results show that the average CMM score was 1.0626, implying a 6.26% improvement in the cost Malmquist productivity during the study period. The results of implementing the system-GMM model also indicate that the greater the banks’ share of mobile device transactions and the larger the banks’ third-party payment transactions volume, the higher the cost productivity growth rate.

Suggested Citation

  • Cho, Tsui-Yueh & Chen, Yi-Shuan, 2021. "The impact of financial technology on China’s banking industry: An application of the metafrontier cost Malmquist productivity index," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:ecofin:v:57:y:2021:i:c:s1062940821000486
    DOI: 10.1016/j.najef.2021.101414
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    3. Feng, Yongqi & Cao, Yue & Ni, Juan, 2024. "Does Fintech affect shadow banking of non-financial firms? Evidence from the entrusted loans," International Review of Financial Analysis, Elsevier, vol. 94(C).

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    More about this item

    Keywords

    Financial technology (Fintech); Data envelopment analysis (DEA); Metafrontier cost Malmquist productivity index (CMM); variable returns to scale (VRS);
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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