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Technical Efficiency Measurement Incorporating Risk Preferences: An Empirical Analysis of Chinese Commercial Banks

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  • Ning Zhu
  • Bing Wang
  • Zhiqian Yu
  • Yanrui Wu

Abstract

By adjusting direction vectors, we are able to measure technical efficiency incorporating risk preference of individual banks using non-parametric and parametric approaches. Furthermore, we explore categories of commercial banks by comparing their risk preferences to the risk preference that optimizes technical efficiency. Three results emerged. First, technical efficiency scores of joint stock and city commercial banks surpassed those of state-owned commercial banks under the optimal risk preference, and technical efficiency generally improved over time. Second, the preference for risk balance was optimal for achieving technical efficiency. Third, a larger proportion of state-owned and joint stock commercial banks fall into the preference for risk neutral category than city commercial banks.

Suggested Citation

  • Ning Zhu & Bing Wang & Zhiqian Yu & Yanrui Wu, 2016. "Technical Efficiency Measurement Incorporating Risk Preferences: An Empirical Analysis of Chinese Commercial Banks," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(3), pages 610-624, March.
    • Handle: RePEc:mes:emfitr:v:52:y:2016:i:3:p:610-624
    DOI: 10.1080/1540496X.2015.1008889
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    Cited by:

    1. Gulati, Rachita, 2022. "Global and local banking crises and risk-adjusted efficiency of Indian banks: Are the impacts really perspective-dependent?," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 23-39.
    2. Boussemart, Jean-Philippe & Leleu, Hervé & Shen, Zhiyang & Vardanyan, Michael & Zhu, Ning, 2019. "Decomposing banking performance into economic and credit risk efficiencies," European Journal of Operational Research, Elsevier, vol. 277(2), pages 719-726.
    3. Khan, Habib Hussain & Kutan, Ali M. & Naz, Iram & Qureshi, Fiza, 2017. "Efficiency, growth and market power in the banking industry: New approach to efficient structure hypothesis," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 531-545.
    4. Yantuan Yu & Jianhuan Huang & Yanmin Shao, 2019. "The Sustainability Performance of Chinese Banks: A New Network Data Envelopment Analysis Approach and Panel Regression," Sustainability, MDPI, vol. 11(6), pages 1-25, March.
    5. Yun Liao & Ruihui Xu, 2023. "Super-efficiency of Listed Banks in China and Determinants Analysis (2006-2021)," Papers 2305.10885, arXiv.org, revised Aug 2024.
    6. Zhu, Ning & Wu, Yanrui & Wang, Bing & Yu, Zhiqian, 2019. "Risk preference and efficiency in Chinese banking," China Economic Review, Elsevier, vol. 53(C), pages 324-341.
    7. Louhichi, Awatef & Boujelbene, Younes, 2020. "Credit risk pricing and the rationality of lending decision-making within dual banking systems: A parametric approach," Economic Systems, Elsevier, vol. 44(1).

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