| With the full liberalization of the domestic banking and complex financial products as well as their derivatives becoming increasingly innovative, especially the eruption of subprime mortgage crisis in the U.S. since 2007, which brought the world economy with a lot of new risk factors and triggered the turmoil of international financial Further market, domestic commercial banks will face a more complex risk environment. As an important participant in the financial markets, commercial banks are the beginning end of financial products supplier, and also play the role of the end consumers. Commercial banks working as the financial institutions operating and managing risk, they profit through assuming different levels of risk, thus their costs and benefits are inevitable to be influenced by the risks in a variety of ways. The capability and level of risk management are the main core competitiveness of commercial banks, however, the efficiency of commercial banks is the most concentrated expression of competitiveness in the process of maximizing profits. Therefore, the risk factors included in evaluating the efficiency of commercial banks, is a practical guide.In this paper, I framework the research model based on the stochastic frontier method (Stochastic Frontier Analysis, SFA) from the parameter methods. Since in this paper, I take the measurement of bank efficiency with risk factors into consideration, the use of SFA approach by assuming that the random interference terms (including the low-efficiency items and random errors U V) distribution, I can minimize the potential effects of random interference terms in the computation process, then the results can fully explain the risk factors on bank efficiency. However, assuming the boundary function has a certain form of subjectivity and the accuracy of the measurement values has a certain impact on the efficiency of commercial banks. Random disturbance item consists of two parts: one is random error term V with a normal distribution; the other is inefficient term U, which subject to truncated normal distribution (subject to zero-truncated). In addition, the SFA model used can obtain the absolute value of efficiency of selected sample of banks in different periods, to facilitate comparison and analysis. After using the SFA approach to do an assessment of economic efficiency, I embed two risk factors in the efficiency of the corresponding evaluation model, and then calculate the risk-adjusted level of efficiency of commercial banks.Based on intermediate approach, consider the three basic elements in the production function in microeconomic theory about the firm, namely, technology (for commercial banks, namely the access to capital), capital and labor, to select the appropriate inputs and production the variables. We selected a total of three input variables, namely capital x1 and capital input prices w1 , labor input x 2and labor price w2 , capital price x 3and capital input w3 ; two output variables net loans Q1 , net investment Q 2; also selected two risk factors, for the capital adequacy ratio R1 , non-performing loans R 2. I select 14 domestic commercial listed banks select from 2004 to 2008 as the object of empirical study. In order to make the data representative and empirical results highly illustrative, I classify samples according to the size of bank assets, including the four major banks: Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Bank of Communications; eight medium-sized bank: China Merchants Bank, Shanghai Pudong Development Bank, Shenzhen Development Bank, China Minsheng Bank, Industrial Bank, China CITIC Bank, Bank of Beijing and China Bank; two small banks: Bank of Ningbo and Bank of Nanjing.Through the estimation of FRONTIER4.1, I exclude non-significant parameters and variables, then estimate the cost-effectiveness of the 14 commercial banks. After analyzing the empirical results, the following conclusions can be drawn:The risk factors with the capital adequacy ratio and non-performing loan ratio as its representative has a big impact on the cost efficiency of commercial banks, especially, on four big banks and two small banks, and they are often made the cost-efficiency of bank underestimated without regard to it. This shows that domestic commercial banks would sacrifice the higher level of banking efficiency by profiting in the form of assuming high-risk---the reduction of capital safety and the deterioration of asset quality, which goes opposite to the initial pursuit of high profit. If simply regarding the research method, taking the risk factors into the analytical framework of efficiency are of very important practical significance for the accuracy and objectivity of assessing the efficiency.During the sample period, joint-stock commercial banks, namely, the cost efficiency of medium-sized commercial bank is higher than large state-owned commercial banks'. However, several small city commercial banks with too short time of establishment, smaller assets and not high business level, lead commercial banks in these cities to be relatively low cost efficiency. To some extent, the asset size of commercial bank and the ownership structure have impact on the level of cost efficiency.From the time trends picture on the cost efficiency of the various commercial banks, we can see the outbreak of the financial crisis in 2007 have some effect on the level of cost efficiency of commercial banks: the financial crisis resulted in the increase in nonperforming loans of banks and the shrink of bank assets; with the country's macro-control to the financial crisis, every bank take measurements to tighten external loans, which makes the cost efficiency of banks decreased.Inadequacies of this article is the use of SFA approach architecture model using a more simple cobb-douglas function, failing to fully consider the correlation between variables, and insufficient amount of obtained sample of small banks, therefore it can not fully reflect the overall features of cost efficiency of banks in this class. |
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