Efficiency Analysis Of Chinese Securities Firms In DEA

With the SSE Composite index have increased from 1161 points in early 2006 to more than 3000 points in 2007, the securities industry swept away losses of whole industry and made a net profit of 25.5 billion in 2006. Today, there are more then 130 securities firms in China. Thanks to the stability of macro-economic, the raise of investors'confidence and the improvement of supervision, securities firms are facing a golden opportunity for development.However, great challenge comes along with the good opportunity. Liberalization in financial area definitely will bring more fierce competition, Comparing with outstanding foreign investment banks, Chinese securities firms expose some shortcomings in profit structure, staff configuration, risk management, scale economy and other aspects. Competition and open environment require securities firms to pay attention to their own operational efficiency because the healthy development of securities firms is very important to the development of the capital market. Securities firms play an irreplaceable role in the development of the national economy, they have to find out operational problems, improve them to develop their core competence. So this paper is trying to seize the information of the efficiency of securities firms and the information may give some help to improve their efficiency by using the C~2R, C~2GS~2 and Super-Efficiency models of Data Envelop Analysis (DEA) method to analyze the efficiency of sample securities firms, and the analysis bases on sample securities firms'annual reports of year 2005 from the website of the Securities Association of China.The results of using C~2R, C~2GS~2 and Super-Efficiency models to analyze showed that high-quality staff and temperate scale are good for efficiency, and the large scale firms have some problems in risk control. Chinese securities firms should learn to foreign investment banks, but according to the different capital market and economic environment between China and West, copy the mode of foreign investment banks directly is an unbefitting way. Chinese securities firms should improve underwriting as the first step to adjust the profit making structure comparing with brokerage, self-trading or other operations. Because brokerage is a simple business that no firm has comparative advantage in earning more commission, and self-trading is not only too dangerous but also too relative with stock market.This paper has such contributions as:1. Study on securities firms'efficiency in China is very rare so far. Previous researches focused on the Core Competence, and the methods of these researches concentrates on comparing scale, profit making structure, corporate governance, business systems, innovation and other aspects between Chinese securities firms and foreign investment banks. This paper uses the internationally prevalent frontier efficiency analysis method--Data Envelopment Analysis (DEA) to measure and analyze securities firms'efficiency. And this paper suggests that Chinese securities firms should consider underwriting as the breakthrough of timeworn profit making structure based on the DEA results.2. This paper avoids the mistakes of previous researches. The previous studying on securities firms'efficiency had some problems such as chose some composite indicator which is improper for DEA, inappropriate divided indicator type and lacked of correlation analysis. Appropriate indicators are very important for DEA, and this paper tries best to choose proper indicators which fit operation of securities firm and national conditions.3. The results of using C~2R, C~2GS~2 and Super-Efficiency models to analyze securities firms'efficiency not only show which firm performed better in the year of 2005, but also provide information to analyze the relationship between efficiency and scale, risk, concentration of ownership and other aspects. This paper finds that firms with large registered capital may have "moral hazard" and more effective firms do better in recruiting high quality employees and controlling the scale of operating departments. Furthermore, most scholars figure that widely scattered ownership is conducive to the efficient operation of a corporation, but in contrary, this paper show that Chinese securities firms with high concentration of ownership performed more efficient than those with low concentration of ownership in 2005.