For which option is credit risk more representative on China banks' total factor productivity: efficiency change or technological progress?
Purpose – The purpose of this paper is to provide new empirical evidence on the impact of credit risk on China banks’ total factor productivity. Design/methodology/approach – The paper employs the Malmquist Productivity Index (MPI) which allows for the examination of five different indices: total...
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Emerald Group Publishing Limited
2012
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| Online Access: | http://irep.iium.edu.my/22891/ http://irep.iium.edu.my/22891/ http://irep.iium.edu.my/22891/ http://irep.iium.edu.my/22891/1/For_which.pdf |
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iium-228912012-06-18T01:16:17Z http://irep.iium.edu.my/22891/ For which option is credit risk more representative on China banks' total factor productivity: efficiency change or technological progress? Sufian, Fadzlan HG Finance HG1501 Banking Purpose – The purpose of this paper is to provide new empirical evidence on the impact of credit risk on China banks’ total factor productivity. Design/methodology/approach – The paper employs the Malmquist Productivity Index (MPI) which allows for the examination of five different indices: total factor productivity change (TFPCH); technological change (TECHCH); efficiency change (EFFCH); pure technical efficiency change (PEFFCH); and scale efficiency change (SECH) indices. Findings – The empirical findings indicate that the State Owned Commercial Banks (SOCB), Joint Stock Commercial Banks (JSCB), and City Commercial Banks (CCB) have exhibited lower TFPCH levels with the inclusion of risk factor. It was found that the JSCB and CCB have exhibited lower TFPCH due to TECHCH, while the SOCB have exhibited lower TFPCH due to EFFCH. The empirical findings suggest that the inclusion of credit risk factor has resulted in a higher JSCB EFFCH levels. On the other hand, the SOCB and CCB have exhibited a lower EFFCH levels due to SECH and PEFFCH, respectively. Research limitations/implications – The results clearly highlight the importance of credit risk and lending quality in determining the total factor productivity change of banks operating in the China banking sector. The author demonstrates that the inclusion of credit risk factor has resulted in a lower TFPCH level of all banks operating in the China banking sector. Thus, excluding the credit risk factor from the analysis on the China banking sector may potentially bias the result upwards. Practical implications – In an environment of heavy government influence over the lending process, a large proportion of loans extended by Chinese banks over the years have gone bad. Policymakers should prevent the flow of new non-performing loans by separating bad clients from banks that are being restructured and recapitalized in the reform of the banking sector. Originality/value – By employing the Malmquist Productivity Index (MPI), the present paper contributes to the existing literature by examining, for the first time, the impact of credit risk on China banks’ total factor productivity. To the best of the author’s knowledge, this type of analysis is completely missing from the literature in regard to the China banking sector. Emerald Group Publishing Limited 2012 Article PeerReviewed application/pdf en http://irep.iium.edu.my/22891/1/For_which.pdf Sufian, Fadzlan (2012) For which option is credit risk more representative on China banks' total factor productivity: efficiency change or technological progress? China Finance Review International, 2 (2). pp. 180-202. ISSN 2044-1398 http://www.emeraldinsight.com/journals.htm?articleid=17024895 10.1108/20441391211215842 |
| repository_type |
Digital Repository |
| institution_category |
Local University |
| institution |
International Islamic University Malaysia |
| building |
IIUM Repository |
| collection |
Online Access |
| language |
English |
| topic |
HG Finance HG1501 Banking |
| spellingShingle |
HG Finance HG1501 Banking Sufian, Fadzlan For which option is credit risk more representative on China banks' total factor productivity: efficiency change or technological progress? |
| description |
Purpose – The purpose of this paper is to provide new empirical evidence on the impact of credit risk on China banks’ total factor productivity.
Design/methodology/approach – The paper employs the Malmquist Productivity Index (MPI) which allows for the examination of five different indices: total factor productivity change (TFPCH); technological change (TECHCH); efficiency change (EFFCH); pure technical efficiency change (PEFFCH); and scale efficiency change (SECH) indices.
Findings – The empirical findings indicate that the State Owned Commercial Banks (SOCB), Joint Stock Commercial Banks (JSCB), and City Commercial Banks (CCB) have exhibited lower TFPCH levels with the inclusion of risk factor. It was found that the JSCB and CCB have exhibited lower TFPCH due to TECHCH, while the SOCB have exhibited lower TFPCH due to EFFCH. The empirical findings suggest that the inclusion of credit risk factor has resulted in a higher JSCB EFFCH levels. On the other hand, the SOCB and CCB have exhibited a lower EFFCH levels due to SECH and PEFFCH, respectively.
Research limitations/implications – The results clearly highlight the importance of credit risk and lending quality in determining the total factor productivity change of banks operating in the China banking sector. The author demonstrates that the inclusion of credit risk factor has resulted in a lower TFPCH level of all banks operating in the China banking sector. Thus, excluding the credit risk factor from the analysis on the China banking sector may potentially bias the result upwards.
Practical implications – In an environment of heavy government influence over the lending process, a large proportion of loans extended by Chinese banks over the years have gone bad. Policymakers should prevent the flow of new non-performing loans by separating bad clients from banks that are being restructured and recapitalized in the reform of the banking sector.
Originality/value – By employing the Malmquist Productivity Index (MPI), the present paper contributes to the existing literature by examining, for the first time, the impact of credit risk on China banks’ total factor productivity. To the best of the author’s knowledge, this type of analysis is completely missing from the literature in regard to the China banking sector. |
| format |
Article |
| author |
Sufian, Fadzlan |
| author_facet |
Sufian, Fadzlan |
| author_sort |
Sufian, Fadzlan |
| title |
For which option is credit risk more representative on China banks' total factor productivity: efficiency change or technological progress? |
| title_short |
For which option is credit risk more representative on China banks' total factor productivity: efficiency change or technological progress? |
| title_full |
For which option is credit risk more representative on China banks' total factor productivity: efficiency change or technological progress? |
| title_fullStr |
For which option is credit risk more representative on China banks' total factor productivity: efficiency change or technological progress? |
| title_full_unstemmed |
For which option is credit risk more representative on China banks' total factor productivity: efficiency change or technological progress? |
| title_sort |
for which option is credit risk more representative on china banks' total factor productivity: efficiency change or technological progress? |
| publisher |
Emerald Group Publishing Limited |
| publishDate |
2012 |
| url |
http://irep.iium.edu.my/22891/ http://irep.iium.edu.my/22891/ http://irep.iium.edu.my/22891/ http://irep.iium.edu.my/22891/1/For_which.pdf |
| first_indexed |
2023-09-18T20:34:47Z |
| last_indexed |
2023-09-18T20:34:47Z |
| _version_ |
1777408973370032128 |