Corporate social behaviour: Is it good for efficiency in the Chinese banking industry?

We develop an output-oriented data envelopment analysis framework to examine the efficiency of Chinese banks over the period 2007–2017 and further test the relationship between efficiency and corporate social responsibility (CSR). We are the first piece of research considering the number of employees as one bank input and potential increase in the number of employees as one CSR indicator. Additionally, we innovatively propose another three specific CSR indicators: namely donation, balance of green credits and loans to small and medium sized enterprises. The results show that the gain from improving allocative output-efficiency by reallocating variable inputs is less than the gain attained by improving technical output-efficiency. Evidence from the second-stage regression analysis shows that the overall indirect technical efficiency is significantly and negatively affected by the volumes of green credits, while an increase in the volumes of donations will improve the indirect allocative efficiency.

[1]  Ming-Miin Yu,et al.  Risk-based decompositions of the meta profit efficiency of Taiwanese and Chinese banks , 2016 .

[2]  Jian Chai,et al.  Efficiency evaluation for banking systems under uncertainty: A multi-period three-stage DEA model , 2019, Omega.

[3]  P. Bogetoft,et al.  Benchmarking with DEA, SFA, and R , 2011 .

[4]  Tsu-Tan Fu,et al.  An examination of the cost efficiency of banks in Taiwan and China using the metafrontier cost function , 2013 .

[5]  M. Harjoto,et al.  The Impact of Corporate Social Responsibility on Risk Taking and Firm Value , 2018 .

[6]  Nada Kobeissi,et al.  Corporate social responsibility and financial performance: an analysis of bank community responsibility , 2014 .

[7]  I. Hasan,et al.  Development and Efficiency of the Banking Sector in a Transitional Economy: Hungarian Experience , 2000 .

[8]  Mario Mustilli,et al.  Corporate Social Responsibility and Banks’ Financial Performance , 2018, International Business Research.

[9]  Abraham Charnes,et al.  Measuring the efficiency of decision making units , 1978 .

[10]  Tzu-Pu Chang,et al.  A comprehensive analysis of the effects of risk measures on bank efficiency: Evidence from emerging Asian countries , 2011 .

[11]  Valentin Zelenyuk,et al.  Data envelopment analysis, truncated regression and double-bootstrap for panel data with application to Chinese banking , 2018, Eur. J. Oper. Res..

[12]  Kristiaan Kerstens,et al.  Infeasibility and Directional Distance Functions with Application to the Determinateness of the Luenberger Productivity Indicator , 2009 .

[13]  N. Gambetta,et al.  Corporate social responsibility and bank risk profile: evidence from Europe , 2016, Service Business.

[14]  Sarah M. Estelle,et al.  Three-Stage DEA Models for Incorporating Exogenous Inputs , 2009, Comput. Oper. Res..

[15]  Ole Bent Olesen,et al.  Identification and Use of Efficient Faces and Facets in DEA , 2003 .

[16]  N. Avkiran,et al.  Benchmarking firm performance from a multiple-stakeholder perspective with an application to Chinese banking , 2010 .

[17]  Kym Brown,et al.  Banking efficiency in China: Application of DEA to pre- and post-deregulation eras: 1993-2000 , 2005 .

[18]  Ole Bent Olesen,et al.  Facet Analysis in Data Envelopment Analysis , 2015 .

[19]  Ole Bent Olesen,et al.  Indicators of ill-conditioned data sets and model misspecification in data envelopment analysis: an extended facet approach , 1996 .

[20]  M. Soana.  The Relationship Between Corporate Social Performance and Corporate Financial Performance in the Banking Sector , 2011 .

[21]  Paul Hudson,et al.  Indirect Production Functions. , 1975 .

[22]  B. Bolton.  Corporate Social Responsibility and Bank Performance , 2013 .

[23]  Tao Xu,et al.  Estimations of operational efficiencies and potential income gains considering the credit risk for China’s banks , 2019, J. Oper. Res. Soc..

[24]  P. W. Wilson,et al.  Estimation and inference in two-stage, semi-parametric models of production processes , 2007 .

[25]  Mette Asmild,et al.  Multi-directional efficiency analysis of efficiency patterns in Chinese banks 1997-2008 , 2012, Eur. J. Oper. Res..

[26]  Yizhe Dong,et al.  Evaluating the Performance of Chinese Commercial Banks: A Comparative Analysis of Different Types of Banks , 2015, Eur. J. Oper. Res..

[27]  Maoguo Wu,et al.  Efficiency evaluation of banks in China: A dynamic two-stage slacks-based measure approach , 2016 .

[28]  R. Shepherd.  Theory of cost and production functions , 1970 .

[29]  Cost efficiency and welfare performance of banks: evidence from an emerging economy , 2020 .

[30]  Y. Tan.  The Impacts of Competition and Shadow Banking on Profitability: Evidence from the Chinese Banking Industry , 2017 .

[31]  Yongjun Li,et al.  Estimation of potential gains from bank mergers: A novel two-stage cost efficiency DEA model , 2017, J. Oper. Res. Soc..

[32]  Chendi Zhang,et al.  Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence , 2012, Manag. Sci..

[33]  K. Schaeck,et al.  Competition, Efficiency, and Stability in Banking , 2012 .

[34]  Kaoru Tone,et al.  Variations on the theme of slacks-based measure of efficiency in DEA , 2010, Eur. J. Oper. Res..

[35]  Nobuyoshi Yamori,et al.  Regional economic development, strategic investors, and efficiency of Chinese city commercial banks , 2013 .

[37]  L. Becchetti,et al.  The Green Bonds Premium Puzzle: The Role of Issuer Characteristics and Third-Party Verification , 2019, Sustainability.

[38]  M. Ariff,et al.  Cost and profit efficiency of Chinese banks: A non-parametric analysis , 2008 .

[39]  Jie Wu,et al.  Measuring slacks-based efficiency for commercial banks in China by using a two-stage DEA model with undesirable output , 2015, Ann. Oper. Res..

[40]  Malcolm P. Baker,et al.  Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds , 2018 .

[41]  T. Kohers,et al.  The Link Between Corporate Social and Financial Performance: Evidence from the Banking Industry , 2002 .

[42]  Yong Tan,et al.  The impacts of risk and competition on bank profitability in China , 2016 .

[43]  Bill Francis,et al.  The Effects of Institutional Corporate Social Responsibility on Bank Loans , 2018 .

[44]  D. Primont,et al.  Multi-Output Production and Duality: Theory and Applications , 1994 .

[45]  Kazuyuki Sekitani,et al.  Decomposing the efficient frontier of the DEA production possibility set into a smallest number of convex polyhedrons by mixed integer programming , 2012, Eur. J. Oper. Res..

[46]  Bert Scholtens,et al.  Corporate Social Responsibility in the International Banking Industry , 2009 .

[47]  C. Mallin,et al.  Corporate Social Responsibility and Financial Performance in Islamic Banks , 2014 .

[48]  Shujie Yao,et al.  Bank ownership, privatization, and performance: Evidence from a transition country , 2013 .

[49]  Canan Yildirim.  Evolution of banking efficiency within an unstable macroeconomic environment: the case of Turkish commercial banks , 2002 .

[50]  A. Charnes,et al.  Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis , 1984 .

[51]  Shawna Grosskopf,et al.  Budget-Constrained Frontier Measures of Fiscal Equality and Efficiency in Schooling , 1997, Review of Economics and Statistics.

[52]  Jamal Ouenniche,et al.  Assessing efficiency profiles of UK commercial banks: a DEA analysis with regression-based feedback , 2018, Ann. Oper. Res..

[53]  Jie Wu,et al.  Efficiency measures of the Chinese commercial banking system using an additive two-stage DEA , 2014 .

[54]  Stephen. Pavelin,et al.  The Impact of Corporate Social Performance on Financial Risk and Utility: A Longitudinal Analysis , 2010 .

[55]  Hirofumi Fukuyama,et al.  Measuring bank performance with a dynamic network Luenberger indicator , 2017, Ann. Oper. Res..

[56]  F. Medda,et al.  The evolution of pricing performance of green municipal bonds , 2019, Journal of Sustainable Finance & Investment.

[57]  T. Baležentis,et al.  How does corporate social responsibility impact banking efficiency: a case in China , 2017 .

[58]  Simon H. Kwan,et al.  Bank Risk, Capitalization, and Operating Efficiency , 1997 .

[59]  C. Girardone,et al.  Financial Frictions, Bank Efficiency and Risk: Evidence from the Eurozone , 2011 .

[60]  Feng-Jui Hsu,et al.  Is a firm’s financial risk associated with corporate social responsibility? , 2015 .

[61]  M. Asutay,et al.  The Impact of Corporate Social Responsibility Disclosure on Financial Performance: Evidence from the GCC Islamic Banking Sector , 2018 .

[62]  Yong Tan,et al.  Risk, Competition and Efficiency in Banking: Evidence from China , 2017 .

[63]  John McDonald,et al.  Using least squares and tobit in second stage DEA efficiency analyses , 2009, Eur. J. Oper. Res..

[64]  Christos Floros,et al.  Risk, capital and efficiency in Chinese Banking , 2013 .

[65]  Hervé Leleu,et al.  Dual Representations of Non-Parametric Technologies and Measurement of Technical Efficiency , 2003 .

[66]  Hirofumi Fukuyama,et al.  Efficiency and ownership: evidence from Japanese credit cooperatives , 1999 .