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This paper estimates and compares the cost efficiency of the Chinese banking industry among different ownership types for the period 2003-2014, using the stochastic metafrontier model. We find that foreign banks have the lowest cost frontier, while state-owned commercial banks undertake the least sophisticated technology. Moreover, the results of the upward trend in the technology gap ratio (TGR) and in metafrontier cost efficiency support that a more open financial market is able to enhance banking efficiency. As for the role of environmental conditions, off-balance sheet items, nonperforming loans, and financial market structure significantly impact the TGRs of different bank types. (JEL C51, G21, D24), I. INTRODUCTION Many academic researchers have looked into the issue of whether deregulation, globalization, and various financial innovations--which are frequently accompanied by increasing competition, operating risk, and global risk--influence bank [...]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.ejor.2006.04.043 Byline: Mei-Hui Wang (a), Tai-Hsin Huang (b) Keywords: Data envelopment analysis; Efficiency persistence; Quasi-fixed inputs; GMM procedure; Markov model Abstract: This article introduces a sequence of four systematic methods to examine the extent to which the economic efficiency of Taiwan's commercial banks persists and to uncover the potential dynamic link between bank performance and various financial indicators. Quasi-fixed inputs are explicitly incorporated in the DEA model to account for possible adjustment costs, regulation, or indivisibilities. Among the four methods, the dynamic panel data model and the Markov model appear to be exploited for the first time in the area of the DEA approach. Evidence is found that bank efficiency exhibits moderate persistence over the sample period, implying that the given sample banks fail to adjust their production techniques in a timely manner. Regulatory authorities and bank managers are suggested to be aware of the level of undesirable non-performing loans due to their close relationship with bank performance. Author Affiliation: (a) Department of Banking and Finance, Tamkang University, Taiwan, ROC (b) Department of Money and Banking, National Chengchi University, Taiwan, ROC Article History: Received 28 September 2004; Accepted 7 April 2006

We construct a Fourier flexible functional form which can globally approximate the unknown true function, taking into account both technical inefficiency and allocative inefficiency components to avoid possible specification error. Empirical results suggest that technical inefficiency alone raises a bank's cost about 12 per cent on average, that allocative inefficiency alone raises an average bank's cost 15.8 per cent, and that the cost rises due to allocative inefficiency decrease over time. Translog evidence on economic efficiency suggests a much higher cost savings when achieving both technical and allocative efficiency than does the Fourier flexible function.

The present study derives a set of cross-equation restrictions imposed on a forward-looking buffer stock model of money demand. Since typically data are seasonally unadjusted for many countries, a seasonal difference rather than the conventional first difference is employed here to compute the growth rate. This seemingly innocuous change in the computation of the growth rate nevertheless makes the multi-period forward-looking money demand equilibrium model substantially different from previous studies. In addition, the related cointegration analysis and implied cross-equation restrictions are also considerably changed. The existence of up to three seasonal unit roots derived from a seasonal difference supports the need for seasonal cointegration, suggesting a new test for the forward-looking equilibrium model. An application of testing such derived cross-equation restrictions to the equilibrium model is illustrated through use of macroeconomic data on Taiwan. JEL classification: C32; E41 Keywords: Buffer stock model of money demand; Cross-equation restrictions; Seasonal cointegration; Seasonal difference

We employ a wide-range of parametric and non-parametric cost frontiers' efficiency estimation methods to estimate economic efficiency and economies of scale, using the same panel data of 22 Taiwanese commercial banks over the period 1982-97. According to our empirical implementation, the two methodologies yield similar average efficiency estimates, yet they come to very dissimilar results pertaining to the efficiency rankings, the stability of measured efficiency over time, the consistency between frontier efficiency and conventional performance measures, and the estimates of scale economies. Thus, the choice of an estimation approach can result in very different conclusions and policy implications regarding cost efficiencies and cost economies. These findings suggest that making policy decisions and evaluations relies on multiple techniques and specifications.