Abstract
The paper develops a simultaneous equations stochastic frontier model (SFM) with dependent random noise and inefficiency components of individual equations as well as allowing dependence across all equations of the model using copula functions. First, feasibility of our developed model was verified via two simulation studies. Then the model was applied to assess cost efficiency and market power of the banking industry of China using a panel data of 37 banks covering the period 2013–2018. Results confirmed that our simultaneous SFM with dependent random noise and inefficiency components outperformed its predecessor, which is a simultaneous SFM with dependent composite errors but with independent random noise and inefficiency components of individual SFMs as well as the conventional single-equation SFM. Apart from the statistical and computational superiority of our developed model, we also see that Chinese banks in general have a high level of cost efficiency and that competition in the banking industry of China mainly exists in state-owned banks and joint stock banks. Presence of economies of scales as well as diseconomies of scales were found in different banks. Also, the state-owned banks embraced most sophisticated technologies thereby allowing them to operate with the highest level of cost efficiency.
DOI
10.3390/math8020238
Publication Date
2020-02-13
Publication Title
Mathematics
Volume
8
Issue
2
Publisher
MDPI AG
ISSN
2227-7390
Embargo Period
2024-11-19
First Page
238
Last Page
238
Recommended Citation
Liu, J., Wang, M., Ma, J., Rahman, S., & Sriboonchitta, S. (2020) 'A Simultaneous Stochastic Frontier Model with Dependent Error Components and Dependent Composite Errors: An Application to Chinese Banking Industry', Mathematics, 8(2), pp. 238-238. MDPI AG: Available at: https://doi.org/10.3390/math8020238
Comments
No embargo required.