Abstract
This paper contributes to the literatures about Chinese commercial banks technical efficiency. In order to eliminate the deviation of efficiency scores caused by an undesirable output that is represented by banks’ non-performing loans, the estimation is based on an enhanced parametric hyperbolic distance function which considers not only desirable outputs but also undesirable outputs. Furthermore, we extend the model to divide the factors that affecting technical efficiency into direct factors and indirect factors and exclude the influence of the latter when analyzing the determiners of banks technical efficiency. The validity of this model is examined by a panel of bank data from 2004-2010.
Highlights
Banks in China have been the focus of research
Factors affecting the banking efficiency are not divided into direct control and indirect control factors in the existing papers about banks efficiency
Macroeconomic and bank-specific variables are always regarded as direct control factors
Summary
Banks in China have been the focus of research. Despite the contribution of previous studies, two issues remain unaddressed. For all we know, there is no one study that adopts an enhanced hyperbolic distance function to analyze Chinese commercial banks efficiency. Cuesta et al [1] developed an enhanced hyperbolic distance function that is stochastic and parametric simultaneously. Factors affecting the banking efficiency are not divided into direct control and indirect control factors in the existing papers about banks efficiency. Macroeconomic and bank-specific variables are always regarded as direct control factors
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