Can Foreign Capital Participation Enhance Commercial Banks’ Market Efficiency?

Abstract

Banks’ efficiency can be decomposed into their ability in expanding their business with given inputs and ability in making maximum profits with given business scale. The former is defined as the operational efficiency while the latter is defined as the market efficiency. This paper tries to test impacts of foreign capital participation on the Chinese listed commercial banks’ market efficiency with two-stage Data Envelopment Analysis (DEA) approach and Tobit model. The results indicate that more foreign capital participation can help to improve the largest banks’ market efficiency, while weak foreign capital participation cannot help. These findings are important not only for China but also for the other transitional economies and developing economies.

DOI: http://dx.doi.org/10.5755/j01.ee.29.1.5444