Measuring Efficiency of Chinese Commercial Listed Banks Based on Data Envelopment Analysis

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1 Measurig Efficiecy of Chiese Commercial Listed Baks Based o Data Evelopmet Aalysis School of Fiace,Zheiag Uiversity of Fiace & Ecoomics, Hagzhou, Chia. docterye@yahoo.com.c Abstract This paper presets CRS ad VRS of DEA model that is used to measure efficiecy. It uses data set o 11 Chiese commercial listed baks over the period 2004 to 2009, ad estimates these baks Techical efficiecy (TE), Pure techical efficiecy (PTE) ad Scale efficiecy by usig Data Evelopmet Aalysis techiques.cotrast to efficiecy of the listed Baks ad o-listed baks, i aalyzig the Efficiecy ad its chage characteristics of the listed Baks, Results show that efficiecy of Commercial baks-listed i chia icrease year by year. I additio, those oit-stock commercial baks are more efficiet tha the large state-owed commercial baks.however, it icreases faster ad their gap is arrowig. Keywords: Measurig Efficiecy Data Evelopmet Aalysis the DEA Model Chiese Commercial Listed Baks 1. Itroductio Efficiecy is a importat comprehesive idicator used to measure the achievemet of operatig behavior, resources allocatio ad techology exertio i fiacial istitutios. Also, bakig efficiecy level has a direct impact o the effect of social resources allocatio as well as the degree of fiacial resources utility( Battes G.ad Coelli T Berger A.N. Hacock D ad Humphrey D.B., ;Yao, Go ad Shiraishi, Maho,2012). With the full ope of fiacial idustry i chia, the etrace of foreig baks has led to the dramatic competitio i Chiese fiacial idustry. Thus, the urget problem domestic bakig sector faces is that how to improve the efficiecy ad competitive power, especially those listed oes Berger A.N.ad Mester L.J.1997;Huag Xupig ad Zhag Xiekui, 2005; Ye Qia Geerally, studies o bakig efficiecy throughout the world ca be divided ito 2 phases: before the 1990s, bakig efficiecy was commoly evaluated from the perspectives of ecoomies of scale ad ecoomies of scope; afterwards, it tured to use frotier efficiecy, icludig X-efficiecy, cost efficiecy ad profit efficiecy Stavros Peristiai,1997; Ku Chag ad Jia Shouqiao 2006 Yua Jiag, Lusheg Wu, Dogmig Jiag,2011. There are i geeral two methodologies i measurig commercial baks efficiecy: fiacial idicators ad frotier aalysis Li Xiaoqi ad Liu Xiagbi,2005 Halkos, George & Tzeremes, Nickolaos The former evaluates baks operatig efficiecy by utilizig those fiacial idexes such as average Retur o Assets, Turover ratio of loa ad Capital adequacy ratio. Although it ca be used coveietly, the result is uable to reflect the total operatig performace. As a result, frotier aalysis is adopted more ofte as evaluatig the bakig efficiecy Che Xiaogag, Michael Skully ad Kym Brow,2005. The frotier aalysis is clearly divided betwee parametric ad oparametric estimatio methods. Thick Frotier Aalysis (TFA), commoly used as the parametric estimatio method, still has a typical drawback. It requires a fuctioal form specificatio for the best efficiet frotier, which may itroduce errors ito calculatio. Therefore, this study adopts Data Evelopmet Aalysis (DEA) which is i the category of o-parametric techiques. Advaces i iformatio Scieces ad Service Scieces(AISS) Volume4, Number16, Sept 2012 doi: /AISS.vol4.issue

2 So far, o similar studies o relative efficiecy of the differet owership modes i Chia have bee doe Che Guozhog ad Liu Zhiyig,2005 Yi Huima This study we discuss the relative efficiecy betwee iputs ad outputs for the differet owership mode of commercial baks i Chia. The rest of the paper is orgaized as follows: Sectio 2 provides a summary of Data Evelopmet Aalysis. Sectio 3 covers the methodological aspects with the empirical results preseted i Sectio 4. Fially, the coclusios are cotaied i Sectio Data Evelopmet Aalysis Data Evelopmet Aalysis (DEA), beig oe of the o-parametric frotier aalysis methods, ca be used to measure productio efficiecy i corporatios. It was origially developed by Chares et al. (1978) ad the applied ito the evaluatio of bakig efficiecy by Sherma ad Gold (1985). By coectig all the best sample poits, it empirically characterizes a piecewise curve combiatio ad forms the covex productio possibility set. DEA calculates ad compares the relative efficiecy of each uit i relatio to all other uits by usig the actual observed values for the iputs ad outputs of each DMU. At preset, may researchers who use the Data Evelopmet Aalysis (DEA) have adopted the cocept of efficiecy brought up by Farrell, that is the comprehesive efficiecy (cost efficiecy, ecoomic efficiecy ad X-efficiecy), made of Allocatio efficiecy ad techology efficiecy. DEA serves as a excellet method to aalyze small scale of samples for it is a oparametric techique. Because those Chiese commercial baks have t bee listed for a log time ad lack data, the DEA methodology is much more feasible. 2.1 DEA Model Data Evelopmet Aalysis (DEA) model, firstly developed by Chares et al. (1978) is based o the cocept of efficiecy brought up by Farrell (1957). By assumig costat returs to scale, this model ca be also called CRS or CCR model. Afterwards, Baker et al. (1984) brought up the VRS (BCC) model for the broader coditio of variable returs to Scale. Both CRS ad VRS models, though, ca ot aalyze the iterval i which such as the icreasig or decreasig margial productivity, the iefficiet DUM is, they are still able to recogize those iefficiet DUMS. Thus, this study adopts Costat Returs to Scale (CRS)-DEA model ad variable returs to Scale (VRS)-DEA model for the measuremet of techical efficiecy (TE) ad pure techical efficiecy (PTE) respectively Costat returs to scale model Costat Returs to Scale model (CRS-DEA. It is assumed that there is data o m iputs (x) ad s outputs (y) for each of N states (the Decisio Makig Uits). For the th state, its ith iput ad rth output data ca be represeted by xi ad yr respectively; vi is the weight of ith iput ad μr is the weight of rth output. xi 0; yr 0 i 1.2,, m; r 1, 2,, s; 1, 2,, ) v= v1 v 2 v m )T ; = 1 2 s )T The efficiecy evaluatio idex for each Decisio Makig Uit (DUM) ca be expressed as: s h r 1 m i 1 r yr 1, 2, 3... v i x i 205

3 To select optimal weights, subectig to h 1; 1, 2,. Aimig at the efficiecy of 0th DUM, we make v ad μ as variables ad all states efficiecy h 1; 1, 2, as a costrait, so the CCR model ca be expressed as m a x r 1 m v i 1 s.t. r 1 m i 1 v Where, v 1, v 2,...v m r yr i x r 0 (1) i 0 1, 1, 2, 3... vixi (2) 0 T y r T x = x1 x2 xm is a 1, 2,... m vector T of iput 0 for th (3) state ad T is a vector of its output, ad X 0 X 0, Y0 Y 0. y = y1 y 2 ys We ca udge whether the 0 th DUM is efficiet by comparig with other DUMs i the equatios. However there is a difficulty i gettig the aswer to the equatios i practice for the Obective fuctio is oliear ad sub-formula. Therefore, we ca use the Chares一Cooper trasformatio to trasform the equatios ito a ordiary liear programmig model problem: max T Y0 s.t.w T X T Y 0, 1, 2, 3,... w T X 0 1 w 0, 0 So the dual programmig of the equatios above ca be expressed as mi m s.t. x X 0 i 1 m y i 1 Y0 0, 0, 1, 2,3,... The meaig of this model is: from the iput orieted perspective, we ca research the iputs efficiecy by fidig a combiatio which subects to miimizig iputs while producig at least the 0th output levels. Similarly, we ca also aalyze the efficiecy of outputs from the output orieted perspective. The we itroduce the slack variables s- ad s+: s ( s1+, s2+, s3+,...,ss+ )T Es ; s ( s1, s2, s3,..., ss )T Em To chage the costrait coditios ito equatios, ad leads to liear programmig: 206

4 mi s.t. x s X 0 1 y 1 s Y0 0, 0, 1, 2,3,..., s 0, s 0 Where, s ad s are slack variables ad is the weight of th state. The ecoomic meaig of this model is: =1 s s 0, it meas state 0 lies o the efficiet frotier ad it is labeled as DEA efficiecy. That is, i this ecoomic system of states, the value of output Y0 has reached to the If ad optimal coditio based o the origial iput X 0 =1 ad s 0 or s + 0, this uit is called weak DEA efficiecy. That is, i this ecoomic system of states, ivestig X 0 ca help to reduce s while cotai the value of origial output Y0 If or improve If s without addig the origial X 0 1, the state is labeled as DEA iefficiecy Variable returs to scale model This CRS model above implies the premise of costat returs to scale which meas the output of the give state will icrease by the same percetage as the iput icreases, vice versa. I fact, there is imperfect competitio i most coditios. Thus, the premise of costat returs to Scale is hard to realize. Cosiderig the give DUM may be i the iteral of icreasig returs to scale or decreasig returs to scale, we ca itroduce the costrait coditio 1 based o the CCR model, which 1 lead to the modified model VRS-DEA model, amely the variable returs to Scale DEA model m i s.t. x y X 0 Y0 1 0, 1, 2, 3,..., The optimal value of this model is called pure techology efficiecy ad it excludes the impacts of a DUM for its ow scale chage. The scale efficiecy of this give DUM ca be obtaied from techical efficiecy dividig pure techical efficiecy. So the formula is: Scale Efficiecy (SE)=Techical Efficiecy(TE)/Pure Techical Efficiecy (PTE). Thus we ca use this relatioship to measure DEA scale efficiecy of those DMUs (listed baks). 207

5 2.2 Iput ad output idicators selectio Whe evaluatig the bakig efficiecy, the first thig is to select the proper iput ad output idicators. Ulike some compaies which produce cocrete ad tagible productios, baks are widely kow as moetary itermediaries. Its operatig process ca be expressed as cash iflow ad outflow, while it is difficult to defie the iputs ad outputs. It is accepted by academic circle aroud the world that there are three ways of choosig the iput ad output idicators. They are productio, itermediary ad capital methods: (1) productio method. Bak is regarded as the producer of deposit ad loa accouts. The output items are those which ca make profit, such as the umber of all types of deposit accouts, volume of loa busiess provided; if the et disbursemet is eeded i oe item, it is the iput item, such as capital labor as well as operatio cost; (2) itermediary method. Bak will be regarded as the moetary itermediary betwee depositors ad ivestors. I this way, this deposit ad loa balaces are classified as the output items, ad the operatig cost ad iterest cost, o the other had, go ito the category of iput items;(3)capital method. Bak is still regarded as the moetary itermediary i this method. However, oly the capital items i the balace sheet are regarded as output items, ad the deposit item of liability is excluded. Due to the specific characteristics of bakig sector, each of the three methods above has flaws. Accordig to the DEA researches o the bakig efficiecy throughout the world, some refereces are costatly discussig how to improve the way to select effective iputs ad outputs idicators. Recetly, BiGogbi ad Lialiag (2009) brought up the ew method depedig o the theory of cash-added to select the proper idicators whe evaluatig the bakig DEA efficiecy. This method ca tell the item, beig iput or output item by whether all the items i the balace sheet create or destroy value. The specific steps are: Step 1:By takig the cash flow of commercial baks as depedet variable ad other items o the balace sheet as idepedet variables, we ca do the statistic regressio aalysis to fid out those factors which ca ifluet the cash flow ad market value of commercial baks. Step 2:Make the statistical test. First, by usig T test, we ca illustrate the factors ifluecig cash flow; the we ca demostrate there is o auto correlatio amog these cash flow factors through the D-W test. Step 3: Determie iput ad output idicators, do the colliear aalysis accordig to the idicators above ad cofirm the fial iput ad output idicators. This study itegrates the way of idicators selectio i this referece ad chooses asset, salary, welfare as iput idicators while deposit, loa, iter-bak ledig /borrowig as output idicators 3. Measurig Result of DEA To take 11 listed baks i Chia as the research sample, icludig 4 state-owed baks ad 7 atiowide shareholdig baks, we gather ad orgaize the 66 groups of fiacial data i all of these baks from 2004 to Most of the iformatio is referred to aual report, Fiace Yearbook of Chia, CBRC ad Securities Times. Sice the iputs elemet is uattaiable, we got TE, PTE ad SE, except AE of these listed baks from 2004 to 2009 usig DEPA versio2.1 software ad the results are show. 208

6 Table1. Rakig of relative idicators amog 11 listed commercial baks Listed commercial Techical Profit per Asset maaged Rak of cost i maagig baks Efficiecy perso per perso every 1 billio asset ICBC CCB BOC BOCOM CITIC HuaXia Bak CMBC SPDB SDB IB CMB The comparisos form measurig result of DEA show that the rakig of TE of iputs outputs measure idex which filtered by cash accretio value method has cosistecy with the rakigs of average profits, average maagig assets ad maagemet expese of every millio RMB. Specifically, the baks with higher TE value also rak ahead i other three idexes, like Hua Xia Bak, Shaghai Pudog Developmet Bak, CMBC ad CCB ad vice versa, such as ICBC, BOC ad CBC. These idexes all reflect operatio behavior effect, resource utilizatio ad techology level of baks, showig the efficiecy value adopted by the cash accretio value method precisely reflect the resource utilizatio ability of listed baks. Rakig of relative idicators amog 11 listed commercial baks are show i table Results To do the horizotal ad vertical aalysis o the differet efficiecies amog 11 listed commercial baks. 4.1 Vertical comparative aalysis o listed baks efficiecy Geerally, Chia s listed baks show high efficiecy level. Betwee 2004 ad 2009, distributio extet of TE value is [0.766,] with a aual figure higher tha 0.89 while of PTE value is [0.896,] with a aual figure higher tha 0.9. Both TE ad PTE values preset a tedecy of goig-up. The differece of TE value arrowed from to ad of PTE value arrowed from to from With the developmet of listed baks, most baks have achieved remarkable success at reiforcig cost cotrol, decreasig recourse waste ad raisig ability of resource collocatio. 209

7 The tred of average efficiecy of listed baks Average efficiecy TE PTE SE Year Figure 1 The tred of average efficiecy of listed baks from 2004 to 2009 Figure 1 shows icrease of TE value by a large margi durig , suggestig that the oit-stock revolutio takes iitial effect ad the TE of state-owed baks will absolutely affect the whole efficiecy of commercial baks. Listed baks performed better these years sice PTE was goig up all alog while SE desceded firstly the asceded which shows scale expasio style of Chia s listed baks reformed from extesive to itesive, uecoomically to ecoomically. At the same time, it, to some extet, promotes the improvemet of TE. TE Differeces of average techique efficiecy betwee two types of listed baks state-owed baks oit-stock baks Year Figure 2. TE differeces betwee two types of listed baks from TE of state-owed commercial baks icreased largely from 2004 to 2007, suggestig the reorgaizatio took its effect ad the cosummatio of bak maagemet is the key to whether TE is able to promote cotiually i the future. O the other had, PTE of state-owed commercial baks desceded firstly the asceded ad grew slower tha shareholdig commercial baks due to oversize issue eve though state-owed baks possess absolute advatages i whatever total asset scale or deposits ad loas scale. Joit-stocks baks have realized the fact that they ca oly develop by raisig operatio efficiecy, brigig creativity ad urturig compariso competitio superiority istead of competig with state-owed baks o traditioal services. We ca see from Figure 3 that both TE ad PTE move up durig these years ad take the lead i other idexes withi baks i Chia. 210

8 PTE State-owed baks Joit-stock baks Year 2008 Figure 3. PTE differeces betwee two types of listed baks from Horizotal comparative aalysis o listed baks efficiecy From the TE average value of state-owed listed baks we ca see that TE is goig up with polarizatio. Durig , TE of state-owed commercial baks moved up year after year of which CCB s ad BOC s were clearly higher tha ICBC s ad BC s. CCB ad ICBC led the head i the rakig of TE, raked as the fourth ad fifth, while CCB ad BOC were the bottom two suggestig the differece i cost cotrol ability. However, the icremet speed of BOC ad BC was faster tha that of ICBC ad CCB which shows the gap was arrowed dow with better overall resource collocatio ad utilizatio abilities. TE ICBC CCB BOC BOCOM CITIC HuaXia CMBC SPDB SDB IB CMB Baks for short Figure 4. The mea values of TE i 11 listed baks from Through aalyzig the levels of shareholdig commercial baks efficiecy, 7 listed atioal shareholdig commercial baks have higher TE tha average level, ad their mea value is higher tha state-owed commercial baks. From the form 1, we ca observe the mea values of aual TE are all higher tha 0.9 i these 6 years. Hua Xia Bak has the highest average TE value, which is followed by Shaghai Pudog Developmet Bak ad CMB, ad the last is SDB. It reveals that although those shareholdig commercial baks have outstadig ability i cost cotrollig, there are still gaps amog differet baks i operatig maagemet as well as efficiecy. 211

9 PTE ICBC CCB BOC BOCOM CITIC HuaXia CMBC SPDB SDB IB CMB Baks for short Figure 5 The mea values of PTE i 11 listed baks from By comparig the efficiecy betwee these two types of baks, all the idicators i shareholdig commercial baks are better tha those of state-owed baks. Also the mea values of three efficiecies i the 6 yeas from 2004 to 2009 show TE ad SE of shareholdig commercial baks are ad higher respectively tha the values of stated-owed baks whose PTE, however, shows lower tha that of shareholdig commercial baks, suggestig the fact that although there is o obvious differece i ier maagemet efficiecy betwee two kids of baks, it ca be credited to the scale efficiecy, which is a advatage to the shareholdig commercial baks. As a result, the overall TE is higher. Apart from that, the SE of listed baks declied before showig a upward tred i 2004, which demostrates all of them have bee improvig the operatig maagemet capacity, helpig them adapt to its ow operatig scale. The operatig patter, aimig at elargig quatities, described as beig extesive, has bee chaged. SE ICBC CCB BOC BOCOM CITIC HuaXia CMBC SPDB SDB IB CMB Baks for short Figure 6. The mea values of SE i 11 listed baks from Coclusio Based o the relative theory of commercial baks efficiecy, this study uses the Data Evelopmet Aalysis (DEA), chooses those represetative idicators of listed baks, measures efficiecy of 11 domestic listed baks, aalyses horizotally amog them ad gets the coclusios as follows: (1) With the advacemet of structural reform i Chiese bakig sector, the efficiecy of commercial baks gradually icreased year by year; some baks efficiecy iclied remarkably after beig listed. (2) Amog the listed commercial baks, average efficiecy of the state-owed commercial baks is lower tha that of shareholdig commercial baks whose speed of efficiecy growth, however, is slower tha that of state-owed commercial baks. Thus, with the costat improvemet of 212

10 Shareholdig system reform i state-owed commercial baks, the gap betwee these two will be arrowig. (3)There is obvious gap amog state-owed commercial baks. The efficiecy of CCB ad ICBC is higher tha BCM s ad BOC s. Also the efficiecy differece ca be foud i shareholdig commercial bak. SDB, CMBC ad CMB all have high bakig efficiecy whereas Idustrial Bak is ot as good as them. 6.Refereces [1]Battes G.ad Coelli T,"A Model for Techical Iefficiecy Effects i a Stochastic Frotier Productio Fuctio for Pael Data ",Empirical Ecoomics,No.20,pp ,1995. [2]Berger A.N., Hacock D, ad Humphrey D.B.," Bak Efficiecy Derived From the Profit Fuctio", Joural of Bakig ad Fiace,No.17,pp ,1993. [3]Berger A.N.ad Humphrey,D. B., "Efficiecy of Fiacial Istitutios:Iteratioal Survey ad Directios for Future Research ",Europea Joural of Operatioal Research, No.11,pp ,1997. [4]Yao, Go ad Shiraishi, Maho, "Efficiecy of Trade Credit Fiace i Chia (March 2012) ", Comparative Ecoomic Studies, Vol. 54, Issue 1, pp , [5]Berger A.N.ad Mester L.J.,"Beyod the Black Box:What Explais Differeces i the Efficiecies of Fiacial Istitutios",Joural of Bakig ad Fiace,No.21,pp ,1997. [6]Huag Xupig ad Zhag Xiekui," Demostratio o Bak Cocetratio, Istitutios ad Efficiecy i Chia ",Joural of Hua City Uiversity,Vol.26,No.3,pp.92-94,2005. [7]Ye Qia,"Two Stage Fuzzy Clusterig based o Latet Kowledge Discovery ad its Applicatio i the Credit Market",Joural of Systems Sciece ad Iformatio,Vol.5,No.3,pp ,2007. [8]Stavros Peristiai, Do Mergers Improve the X-Efficiecy ad Scale Efficiecy of U.S. Baks? Evidece from the 1980s, Joural of Moey, Credit, ad Bakig, Vol. 28 No. 3,1997. [9]Ku Chag ad Jia Shouqiao,"X-Efficiecy of Commercial Baks i Chia", South Chia Joural of Ecoomics.No.6,pp.18-29,2006. [10]Yua Jiag, Lusheg Wu, Dogmig Jiag, "Model for Evaluatig the Security of Wireless Sesor Network with Triagular Fuzzy Iformatio", JCIT, vol. 6, o. 11, pp , 2011 [11]Li Xiaoqi ad Liu Xiagbi," Measurig the Efficiecy of Chiese Baks ad Aalyzig the Ifluetial Factors",Joural of Shaghai Uiversity of Fiace ad Ecoomics,Vol.7,No.4.pp.16-22,2005. [12]Halkos, George & Tzeremes, Nickolaos, "Rakig accoutig, bakig ad fiace ourals: A ote," MPRA Paper 36166, Uiversity Library of Muich, Germay [13] Che Xiaogag, Michael Skully ad Kym Brow," Bakig efficiecy i Chia: Applicatio of DEA to pre- ad post-deregulatio eras: ", Chia Ecoomic Review,No.16,pp ,2005. [14]Che Guozhog ad Liu Zhiyig, "The Study of Bakig Efficiecy Based o Cobb-Douglas Fuctio",Joural of Hefei Uiversity(Natural Scieces),No.12,pp.13-15,2005. [15]Yi Huima," Efficiecy Evaluatio of Chiese Commercial Baks", Shaghai Fiace, No. 10, pp.18-20,2006. [16Pag Ruizhi," Efficiecy Differece ad Iput Crowdig Aalysis o State-owed ad Joit-stock Baks", Joural of Cetral Uiversity of Fiace & Ecoomics,No.9,pp.30-35,2006. [17], LIN Da-ya, "A Measuremet of Remibi Equilibrium Exchage Rate ad Misaligmet ( ) Based o BEER Model", AISS: Advaces i Iformatio Scieces ad Service Scieces, Vol. 4, No. 5, pp. 88 ~ 97, [18] Hamid Turab Mirza, Lig Che, Gecai Che, "Practicability of Dataspace Systems", JDCTA, Vol. 4, No. 3, pp. 233 ~ 243, 2010 [19] Bialig Ou, Li Zhao, Xu Zhag, Shouyag Wag, "Measurig the Effects of Chia Moetary Policy o Macro-ecoomy: A FAVAR Approach", AISS, Vol. 4, No. 4, pp. 1 ~ 10,

An Empirical Study on the Contribution of Foreign Trade to the Economic Growth of Jiangxi Province, China

An Empirical Study on the Contribution of Foreign Trade to the Economic Growth of Jiangxi Province, China usiess, 21, 2, 183-187 doi:1.4236/ib.21.2222 Published Olie Jue 21 (http://www.scirp.org/joural/ib) 183 A Empirical Study o the Cotributio of Foreig Trade to the Ecoomic Growth of Jiagxi Provice, Chia