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Explaining Bank Efficiency Differences Between China and Taiwan by Meta-Frontier Cost Function

Author

Listed:
  • Yi-Cheng Liu

    (International Business Department, Tamkang University, 151 Yingzhuan Rd., Tamsui Dist., New Taipei City 25137, Taiwan (R.O.C.), Taiwan)

  • Wen Yang

    (Department of Statistics, Tamkang University, 151 Yingzhuan Rd., Tamsui Dist., New Taipei City 25137, Taiwan (R.O.C.), Taiwan)

  • Shin-Ying Mai

    (Financial Analyst, C.I.T. Group, New Jersey, USA)

  • Chao-Cheng Mai

    (Department of Industrial Economics, Tamkang University, Taiwan;
    Research Center for Humanities and Social Sciences, Academia Sinica, 128 Sec. 2, Academia Rd., Nankang, Taipei 11529, Taiwan (R.O.C.), Taiwan)

Abstract

The purpose of this paper is to employ the Meta-Frontier Cost Function to compare the efficiencies of banks in China and Taiwan over the period 2003–2009. Different from previous literature using loans and securities as the output variables in evaluating banking efficiency, we propose two new variables: interest income on loans and nonperforming loans, to identify whether the banks are both cost and profit efficient and to control the quality of loans. Evidence is found that the average cost efficiency of China's banks leads the Taiwanese banks with a significant gap. Some policy implications are provided accordingly.

Suggested Citation

  • Yi-Cheng Liu & Wen Yang & Shin-Ying Mai & Chao-Cheng Mai, 2012. "Explaining Bank Efficiency Differences Between China and Taiwan by Meta-Frontier Cost Function," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 15(04), pages 1-25.
    • Handle: RePEc:wsi:rpbfmp:v:15:y:2012:i:04:n:s0219091512500245
    DOI: 10.1142/S0219091512500245
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    References listed on IDEAS

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    1. Fried, Harold O. & Lovell, C. A. Knox & Schmidt, Shelton S. (ed.), 1993. "The Measurement of Productive Efficiency: Techniques and Applications," OUP Catalogue, Oxford University Press, number 9780195072181.
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    Cited by:

    1. Anachit Bagntasarian & Emmanuel Mamatzakis, 2019. "Testing for the underlying dynamics of bank capital buffer and performance nexus," Review of Quantitative Finance and Accounting, Springer, vol. 52(2), pages 347-380, February.
    2. Mamatzakis, Emmanuel & Bagntasarian, Anna, 2019. "The nexus between underlying dynamics of bank capital buffer and performance," MPRA Paper 92961, University Library of Munich, Germany.
    3. Dong Xiang & Parmendra Sharma & Yuming Zhang, 2019. "The Global Financial Crisis, Fiscal Stimulus Package and the Chinese Banking Sector — A Pre- and Post-Efficiency Analysis," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(02), pages 1-43, June.
    4. Yi-cheng Liu & Yue-cune Chang, 2013. "The Regional Performances of Agricultural Bank of China Applying GEE Method Multiple Linear Regression," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 3(5), pages 1-3.
    5. Imad Jabbouri & Maryem Naili, 2020. "Determinants of Nonperforming Loans in Emerging Markets: Evidence from the MENA Region," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(04), pages 1-33, February.

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    More about this item

    Keywords

    Meta-frontier cost function; bank efficiency; China; Taiwan;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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