Efficiency evaluation of China's listed commercial banks based on a multi-period leader-follower model

Abstract

Against the background of deepening financial reform, the improvement of operational efficiency has become the consensus of the banking industry. However, the impact of undesirable outputs should also be considered in the efficiency evaluation of commercial banks, for which the directional distance function (DDF) is a feasible method. The present study proposes the application of a multi-period leader-follower model to dynamically evaluate the operational efficiency of commercial banks. The proposed model overcomes the defect of ignoring the internal structure of the decision making-unit (DMU) present in the traditional data envelopment analysis (DEA) method, and expands the leader-follower model with single-period efficiency. In this study, the following four observations are made from the analysis of the efficiency results of 16 representative commercial banks from 2009 to 2018. (1) The multi-period leader-follower model is more distinguishable in terms of efficiency calculation. (2) During the period of 2014–2018, the stage and system efficiencies were improved and more stable than those during the period of 2009–2013. (3) From 2009 to 2018, the inefficiency value of the average fundraising efficiency was higher than that of the average capital-utilization efficiency. (4) The system and capital-utilization efficiencies of state-owned commercial banks are inferior to those of joint-stock banks. Furthermore, the fundraising efficiency of state-owned commercial banks is not much less than that of joint-stock banks. The domestic and international macro and micro influencing factors of commercial bank efficiency are analyzed. Finally, some policy recommendations for improving the operational efficiency of commercial banks are put forward.