Efficiency of Commercial Banks in Developing Countries: A Case Study of China Mainland, India and Indonesia

Lin, Jiayu (2014) Efficiency of Commercial Banks in Developing Countries: A Case Study of China Mainland, India and Indonesia. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

This study investigates the influence of the risk factor (equity) and environmental conditions have on the cost efficiency of three developing Asian countries, China mainland, India and Indonesia for cross-country comparisons of efficiency using a parametric approach, covering period of year 2006 to 2012. The goal of this analysis is to identify the impacts brought by equity and environmental variables on commercial banking efficiency in China mainland, India and Indonesia, especially the 2008 global financial crisis. To conduct this analysis, stochastic frontier analysis is utilized.

Results show that the environmental conditions of each country play important roles in the definition and specification of the common frontier of different countries. Results suggest that the banking efficiency in China mainland, India and Indonesia has a gradually declined tendency before and after incorporating the environmental variables. Without the environmental variables, the average cost-efficiency scores of three countries line in the range of 83.6% to 83.9% from year 1999 to year 2006 and in the range of 77.6% to 78.6% for the period of 2007 to 2012. When environmental variables are included in the model, the differences between two periods are increased substantially, ranging from 80% to 45%.

After incorporating the risk factor (equity), cost efficiency scores for commercial banking sector in China mainland, India and Indonesia have become slightly lowered, but show a same tendency as the ones when the risk factor is removed.

Overall, the results demonstrate that environmental variables contribute significantly to the difference in efficiency scores between the three counties. In other words, failure to incorporate the environmental factors may not be able to adequately describe the banking efficiency tendency of China mainland, India and Indonesia in the period of 1999 to 2012. However, the results also indicate that the impact of equity makes slightly difference on the level of efficiency in these three developing Asian countries in the sample period.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 12 Nov 2014 10:00
Last Modified: 08 Dec 2016 03:16
URI: http://eprints.nottingham.ac.uk/id/eprint/27458

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