The risk‐adjusted profit productivity change in Chinese banks: A comparative analysis of the different type banks

Abstract

This study incorporates a risk factor into the framework of the profit‐oriented productivity change of Juo et al. (2015, https://doi.org/10.1016/j.omega.2015.04.013) to introduce a risk‐adjusted profit productivity measure. We further decompose the measure into changes in allocative inefficiency, technical inefficiency, technology, and price effects. In order to compare profit performance and its sources in Chinese banks, we employ 43 Chinese banks from 2015 to 2019 as the sample. We find that all Chinese banks have a significant improvement in profit productivity, and their profit loss mainly results from technical decline. State‐owned banks have better profit efficiency, but Chinese city banks have the highest profit productivity growth. The main contribution is that ownership cannot affect profit productivity but can function in production‐related components, namely, changes in technical inefficiency and technology.