The Research On China's Commercial Banks' Efficiency Based On The Property Rights Theory

Since China's financial business has been completely opened to the foreign banks from December 11, 2006, foreign banks and banks have been in a fully competition, which gives Chinese-funded banks unprecedented pressure. For a long period, the efficiency of China's commercial banks, especially the state-owned commercial banks, has been very low, and the reform is lagging behind. The property rights theory claim that the improper structure of property rights is the source of low efficiency. In China, commercial banks are mainly controlled by the state, and the state-owned property rights usually cause many serious issues, such as mortal hazard, leading to inefficient banks. The reform of property rights system started from 2003 reduced the proportion of state-owned shares and introduced overseas strategic investors in order to achieve the diversification of the property rights structure. With the background of the reform, this paper focuses on the effect imposed by the property rights on commercial banks efficiency.Firstly, by the use of DEA method, this paper estimates cost efficiency of 12 China's representative commercial banks during 2001 -2007, and then decompose cost efficiency into technology efficiency and allocation efficiency. Technology efficiency also can be decomposed into pure technology efficiency and scale efficiency. In this way, this paper gets a comprehensive knowledge of the sample banks efficiency situation during 2001-2007. Further more, this paper carry out a comparative analysis on the sample banks efficiency based on different property right structure: by one way, this paper divide the sample banks into three categories in accordance with the identity of the controlling shareholder, and by the comparison of their efficiency differences on that basis, it can be seen that the efficiency of non-state-owned banks is higher than that of state-owned banks; by another way, this paper compare the banks efficiency before and after the foreign capital joins into the sample banks, which show us that the difference is obvious. Through the above analysis, it can be primarily supposed that different structure of property rights have an effect on banks efficiency.Secondly, by the use of binary choice model (Probit model), this paper analysis the factors, especially the structure of property rights, which can influences banks efficiency. In Probit model, the value of Y can only be 0 or 1.This paper take the Malmquist index as a judgment base. If the M index>1, Y is 1; if the M index≤0, Y is 0. As for the explanatory variables, this paper introduces Non-Performance Loan ratio and asset scale to represent banks financial characteristic, and also introduce three variables to represent different property rights structure. The regression result proves again that property rights structure is one of the factors influencing the bank efficiency.Finally, this paper points some lacks of China's reform on commercial banks, and then gives some suggestion on how to improve banks efficiency further. China should deepen the reform, diversify the structure of property rights, and improve the banks internal controlling mechanism, as well as external monitoring system.