Gauging Cost Efficiency of China’s Listed Banks

Most literature on data envelopment analysis results in efficiency values that are too similar to be compared. This study resolves this issue using a “cost efficiency model,” surveying the efficiency of Chinese listed banks through an analysis of 25 listed banks from 2001 to 2016. The results show that less efficient banks only improve through measures such as lowering staff size, reducing payroll, or increasing loans and making investments to generate higher revenue. Further, we found that China’s listed banks achieved the highest level of cost efficiency before 2006. As banker confidence increased, banks provided more credit, which resulted in higher loan losses, leading to a decline in listed banks’ operational efficiency.

Keywords: listed banks; cost efficiency; data envelopment analysis; operational efficiency.