The impact of macroeconomic and regulatory factors on bank efficiency: A non-parametric analysis of Hong Kong’s banking system |
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| Institution: | 1. Nottingham University Business School, Jubilee Campus, Wollaton Road, Nottingham NG8 1BB, UK;2. Department of Economics, Loughborough University, Ashby Road, Loughborough LE11 3TU, UK;1. Department of Economics, Statistics and Finance, University of Calabria, I-87036 Arcavacata di Rende, CS, Italy;2. Royal Docks Business School, University of East London, Docklands Campus, 4-6 University Way, London E16 2RD, UK;1. Economics Department, Lancaster University Management School, LA1 4YX, United Kingdom;2. Isenberg School of Management, University of Massachusetts-Amherst, 90 Campus Center Way, 209A Flint Lab, Amherst, MA 01003, United States;3. The University of Kent, Kent Business School, Canterbury, Kent, United Kingdom;1. Faculty of Economics, University of Toyama, Japan;2. Graduate School of Economics, Osaka University, Japan;3. Graduate School of Business Administration, Kobe University, Japan;1. Department of Economics, University of Piraeus, Greece;2. Professor of Finance, Jubilee Building, School of Business, Management, and Economics, University of Sussex, Brighton BN1 9RH, UK;1. Faculty of Finance and Banking, University of Finance—Marketing, Vietnam;2. Discipline of Economics Finance and Property, School of Business, Western Sydney University, Campbelltown Campus, Building 22, Room 2.19, Australia;3. Discipline of Economics Finance and Property, School of Business, Western Sydney University, Campbelltown Campus, Building 22, Room 2.23, Australia;1. College of Business and Economics, University of Rwanda, Rwanda;2. Long Island University-Post, USA;3. Jönköping International Business School, Jönköping University and Linnaeus University Växjö, Sweden |
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| Abstract: | This paper assesses the relative technical efficiency of institutions operating in a market that has been significantly affected by environmental and market factors in recent years, the Hong Kong banking system. These environmental factors are specifically incorporated into the efficiency analysis using the innovative slacks-based, second stage Tobit regression approach advocated by Fried et al. Fried, H.O., Schmidt, S.S., Yaisawarng, S., 1999. Incorporating the operating environment into a nonparametric measure of technical efficiency. Journal of Productivity Analysis 12, 249–267]. A further innovation is that we also employ Tone’s Tone, K., 2001. A slacks-based measure of efficiency in data envelopment analysis. European Journal of Operational Research 130, 498–509] slacks-based model (SBM) to conduct the data envelopment analysis (DEA), in addition to the more traditional approach attributable to Banker, Charnes and Cooper (BCC) Banker, R.D., Charnes, A., Cooper, W.W., 1984. Some models for estimating technical and scale efficiencies in data envelopment analysis. Management Science 30, 1078–1092].The results indicate: high levels of technical inefficiency for many institutions; considerable variations in efficiency levels and trends across size groups and banking sectors; and also differential impacts of environmental factors on different size groups and financial sectors. Surprisingly, the accession of Hong Kong to the People’s Republic of China, episodes of financial deregulation, and the 1997/1998 South East Asian crisis do not seem to have had a significant independent impact on relative efficiency. However, the results suggest that the impact of the last-mentioned may have come via the adverse developments in the macroeconomy and in the housing market. |
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