A study on the operational performance of Chinese commercial banks considering time lag effects: A dynamic three-stage time-lag cross-efficiency model

Abstract

In the multi-period and multi-stage operational process of banks, fixed assets, deposits, and non-performing loans (NPLs) are elements with time lag effects. Not or only considering one time-lag element could result in biased efficiency evaluation results. Therefore, this study proposes a dynamic three-stage time-lag range directional measure (RDM) cross-efficiency model that considers three types of time-lag elements simultaneously to assess the operational performance of banks more accurately and comprehensively. Moreover, the proposed model takes into account the following factors: non-oriented, cross-efficiency, negative data, and undesirable elements. This study conducts in-depth research on the operational performance of Chinese commercial banks and obtains the following observations. (1) The change degrees of different types of banks influenced by the different time-lag elements were inconsistent. (2) Three time-lag elements significantly influenced the operational performance of four types of banks, which was most significant for state-owned commercial banks. (3) All banks were assessed as inefficient during 2017–2021, and the highest average efficiency was found in the capital allocation stage, while the profitability stage ranked at the bottom. (4) Rural and joint-stock commercial banks had the best performance in all sub-stages, while state-owned commercial banks had the worst performance.