Can Ownership Diversification Enhance Banks’ Efficiency? An Analysis Based on Super Efficiency and Tobit Regression on the Chinese Listed Commercial Banks
Keywords:Ownership diversification, Super efficiency, Tobit regression, Data Enveloping Analysis, Chinese listed commercial banks
Ownership diversification can improve the monitoring level in commercial banks and hence increase the efficiency. A good case is the Chinese commercial banks which have achieved outstanding performance in the recent years. In the past decade, many Chinese banks have been listed. Going listed has provided opportunities for the banks’ ownership to be diversified. Since those banks were controlled more or less by the state before going listing, it is meaningful to study the impacts of ownership diversification on the Chinese listed commercial banks’ efficiency. Our sample in this paper includes sixteen Chinese listed commercial banks with data from 2007 to 2011.
Herfindahl index is the most widely used proxy to measure the degree of concentration. Hence it can reflect the degree of diversification too. In this paper, we have used Herfindhal index of the largest, the largest three, the largest five and the largest ten shareholders as the proxies for ownership structure. We include these four proxies because in the Chinese listed banks, some are owned by several largest shareholders, while others have much fewer large shareholders.
There are several methods to measure the banks’ efficiency, to get more precise measurement, we adopt the super efficiency method. Super efficiency has the advantage of higher comparability for the sampled banks. on the other hand, we have used Tobit regression model rather than the ordinary least square (OLS) method because the dependent variable (the super efficiency) is positive. In this paper, we have measured the super efficiency with Data Enveloping Analysis (DEA) and then studied the impacts of the ownership diversification on the efficiency with Tobit regression model.
The Chinese listed banks can be categorized into two groups. One is the four formerly state-owned largest commercial banks (hereinafter “Big Four”), the other is the group of smaller banks with less control from the government (hereafter non-Big Four). Because these two groups have different ownership structure, the ownership diversification can influence their efficiency differently. To discover the differences of the impacts from the ownership diversification, we try to compare the impacts of ownership diversification on the efficiency of the formerly state-owned larger banks (Big Four) and smaller banks (Non-Big Four). To overcome the problem of inadequate observations in Big Four sample, we first run Tobit regression with the full sample, and then run Tobit regression with non-Big Four sample. The difference in the coefficients can reveal the different impacts of ownership diversification on the efficiency.
Our results indicate that ownership diversification can enhance the listed commercial banks’ efficiency. But the coefficients in the non-Big Four sample is smaller than those in the full sample models, which indicates ownership diversification has greater positive impacts on the efficiency of the formerly state-owned larger banks than that of the smaller banks.
Our contribution is that our paper is the first one to study the impacts of the ownership diversification on the listed commercial banks which were previously held by the state.