Risk, competition and efficiency in banking: Evidence from China

Tan, Yong; Floros, Christos

doi:10.1016/j.gfj.2017.12.001

Cited by 99 publications

(36 citation statements)

References 46 publications

(30 reference statements)

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“…Similar investigations were also conducted by Tan and Floros (2018) and Tan and Anchor (2017b). The empirical studies mainly focused on bank-level risk.…”

Section: Introductionmentioning

confidence: 82%

“…Several empirical banking papers focused on the assessment of the relationship between risk and efficiency in banking (Altunbas, Carbo, Gardener, & Molyneux, 2007;Fiordelisi, Marques-Ibanez, & Molyneux, 2011;Samiento and Galan, 2017;Tan & Floros, 2018;Tan & Anchor, 2017b). Altunbas et al (2007) measured bank risk using loan loss reserve and loan to deposit ratio, while three risk indicators were considered by Fiordelisi et al (2011), including non-performing loans, 1 year ahead expected default frequency and 5-years ahead expected default frequency.…”

Section: Introductionmentioning

confidence: 99%

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Deconstructing three‐stage overall efficiency into input, output and stability efficiency components with consideration of market power and loan loss provision: An application to Chinese banks

Fukuyama

Tan

2020

Int. J Fin Econ

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The current study proposes a new three-stage network data envelopment analysis (DEA) model to estimate three different types of efficiencies. More specifically, the input efficiency is estimated in the first stage, followed by the evaluation of stability efficiency in the second stage, and finally, the output efficiency is derived from the final stage. In particular, we consider market power in deposits and market power in loans in the banking production process. Rather than using non-performing loans as an undesirable output, this paper innovatively uses loan loss provisions in bank production. We argue that the loan loss provisions are helpful to improve bank stability because they provide a cushion to absorb unexpected losses, therefore we treat it as a good intermediate output in the second stage and a good intermediate input in the third stage. The results exhibit that the scores of stability inefficiency are the highest, followed by output inefficiency, while Chinese commercial banks have the lowest level of input inefficiency. Not only did we observe that the Chinese banking industry has the highest level of stability inefficiency, but we also noticed that the stability inefficiency had the strongest volatility during 2007-2017. We also explore the impact of non-performing loan ratios from three different geographical areas on bank efficiency in China in a secondphase regression analysis, the results of which show that the input inefficiency results from higher levels of financial risk from the central area in China, while the western area in China has the opposite sign.

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“…Similar investigations were also conducted by Tan and Floros (2018) and Tan and Anchor (2017b). The empirical studies mainly focused on bank-level risk.…”

Section: Introductionmentioning

confidence: 82%

Section: Introductionmentioning

confidence: 99%

Deconstructing three‐stage overall efficiency into input, output and stability efficiency components with consideration of market power and loan loss provision: An application to Chinese banks

Fukuyama

Tan

2020

Int. J Fin Econ

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“…The use of number of employees and fixed assets as inputs is in accordance with Fukuyama and Weber (2017), while the use of deposits as input is in line with the argument of Yildirim (2002). The related three input prices are price of labour, price of capital and price of funds, the measurements of which are the ratio of personal expenses to the number of employees (Dong et al, 2016), the ratio of non-interest expenses to fixed assets (Tan & Floros, 2018) In the efficiency analysis, we consider three inputs, including number of employees, fixed assets and total deposits; two outputs, including interest income and non-interest income, as well as three input prices. The input prices are price of labour, measured by the ratio of personnel expenses to number of employees; price of capital, measured by the ratio of non-interest expenses to fixed assets and the price of funds measured by the ratio of interest expenses to total deposits.…”

Section: Data Sources and Specification Of Inputs And Outputsmentioning

confidence: 92%

Corporate social behaviour: Is it good for efficiency in the Chinese banking industry?

Fukuyama

Tan

2021

Ann Oper Res

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We develop an output-oriented data envelopment analysis framework to examine the efficiency of Chinese banks over the period 2007–2017 and further test the relationship between efficiency and corporate social responsibility (CSR). We are the first piece of research considering the number of employees as one bank input and potential increase in the number of employees as one CSR indicator. Additionally, we innovatively propose another three specific CSR indicators: namely donation, balance of green credits and loans to small and medium sized enterprises. The results show that the gain from improving allocative output-efficiency by reallocating variable inputs is less than the gain attained by improving technical output-efficiency. Evidence from the second-stage regression analysis shows that the overall indirect technical efficiency is significantly and negatively affected by the volumes of green credits, while an increase in the volumes of donations will improve the indirect allocative efficiency.

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“…Banking data from Gulf Cooperation Council (GCC) market support for both competition-stability and competition-fragility views in the area (Saif-Alyousfi, Saha, & Md-Rus, 2018). Intensified competition decreases insolvency risk and credit risk but increases liquidity risk in the Chinese banking industry (Tan & Floros, 2018). Martinez-Miera and Repullo (2010) suggest a nonlinear relationship between competition and bank risk-taking who propose a U-shaped relationship between bank competition and bank failure risk.…”

Section: Bank Competition and Bank Stabilitymentioning

confidence: 99%

Bank Competition, Efficiency, and Stability in Macau

Xia

Lei²,

Liang³

2019

AFR

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Macau has the uppermost population density and the fourth-highest GDP per capita in the world. Macau’s banking system is regarded as one of the most important indicators of Macau’s macroeconomic growth and stability during its transformation into a wealthy and modern metropolis. In this study, we use a sample of 26 banks to explore the relationship of bank competition, efficiency and stability in Macau from its return to China in 1999 to 2016. Our results demonstrate that bank competition does cause efficiency in Macau throughout the study period. We also find indications of a positive but not significant connection between bank market power and bank fragility including income volatility and insolvency risk. Moreover, this study finds no evidence that the size of operations proxied by total bank loans and total assets would impact bank efficiency, indicating that economies of scale or bank market share don’t necessarily bring about efficiency in Macau. Our evidence contributes to the literature by being the first to thoroughly examine the relation of bank competition, efficiency and stability in Macau. The findings provide meaningful implications to the practitioners and policymakers to make sound decisions accordingly, especially to closely monitor and maintain a proper level of competition in Macau’s banking sector.

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Risk, competition and efficiency in banking: Evidence from China

Cited by 99 publications

References 46 publications

Deconstructing three‐stage overall efficiency into input, output and stability efficiency components with consideration of market power and loan loss provision: An application to Chinese banks

Deconstructing three‐stage overall efficiency into input, output and stability efficiency components with consideration of market power and loan loss provision: An application to Chinese banks

Corporate social behaviour: Is it good for efficiency in the Chinese banking industry?

Bank Competition, Efficiency, and Stability in Macau

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