Empirical Research On The Fund Utilizations Efficiency Of Chinese Finance Companies

In China, the Enterprise Group Finance Company (hereinafter referred to as the finance company) is devoted to strengthening Group centralized management of funds and to improving the fund utilization efficiency(FUE) of the Group funds and member units.Large enterprise groups in China accord with the relevant provisions of the China Banking Regulatory Commission(CBRC) to set up finance companies, and their main functions include Contributing to the development of group strategy and promoting the industrial development of group enterprises; contributing to the building of financial control system, and strengthening financial risk control ability of the Company; facilitating the integration of the Group’s internal resources, and maximizing the overall value of the Group; contributing to industrial-financial synergies, enhancing group competitiveness; promoting the adjustment of the industrial structure of the Group and the Group’s capacity for sustainable development; helping improve our modern financial system and accelerating the development of the financial industry.Since the establishment of China’s first finance company on May 7,1987, this sector has experienced 26 years of development, experiencing a quick in the number of institutions, the size of asset, and the ability of serving the Group. It has gradually become an important force in the capital and money markets.Combing through foreign literature on finance companies, however, we have not found much theoretical research on finance companies and their operations and effects; domestic researches concentrate on finance company’s business development and other qualitative studies, largely ignoring quantitative analyses of the operational efficiency of such companies.Both theory and practice prove that finance companies can improve the FUE of group funds. There is an implicit assumption here that the use of the funds itself is efficient. However, so far, scholars at home and abroad have only paid attention to centralized management of funds of the finance company, and no studies on finance companies’efficient use of funds could be found. On the basis of existing literature, this article takes into account the operational realities of finance companies and uses the DEA model to analyze the operational efficiency of capital in China’s finance companies.Structure and contents:Chapter I is the introduction. It defines the subject and scope of this research, describes the research background, and displays its significance for finance companies. We then offer brief comments on the current domestic and international finance company research. Thereafter this article introduces relevant methodologies. Finally it summarizes the major contributions of the paper and its inadequacies.Chapter II reviews the current status of China’s finance companies. The analysis begins with the positioning of our finance companies from the perspective of regulators and enterprise groups, followed by a summary of the background as well as the results achieved in each of the four stages of development of those companies and an overview of the current development of finance companies in China.The third chapter deals with basic theories and existing literature. It first describes the theoretical basis of finance companies, including industry and finance combination theory and internal market theory. It then moves to a review of domestic and international financial research literature. We find that foreign research literature mainly focuses on the two aspects of function and financial processing while domestic scholars concentrate on business development, development model, and comparison with foreign companies.Chapter IV, research method. This chapter focuses on the FUE and FUE’s dynamic change. This chapter begins with a brief overview of frontier approach of efficiency, then introduced the DEA model to evaluate the FUE of finance company, and Malmquist Index to evaluate dynamic change of FUE. And also application of the DEA model and Malmquist Index are summarized. The last, this chapter draws on some of the existing discoveries on input and output indicators to make rational choices and empirical analysis.Chapter V offers empirical studies the FUE of the finance companies in China on the basis of previous literature review and research design. Specifically, first, this chapter descriptive statistical analysis of input and output indicators, following, empirical analysis horizontal comparison and longitudinal dynamic changes of the FUE. Finally, analyze the the typical benchmark of finance companies and foreign finance companies.Chapter VI supplies suggestions for China’s finance companies to increase the FUE. Based on results of previous chapters and from the perspective of finance companies, enterprise groups, and macro-policy, this chapter proposes three improvement strategies.Chapter VII conclusions and prospect. This chapter first summarizes our findings about the FUE, and the dynamic change of FUE. It then highlights the originality of this paper and acknowledges its inadequacies. Finally comes a brief extension into bordering areas.The results show that:First, from a statistical analysis can be seen:the finance company in China in recent years developed very rapidly, the rapid expansion of the number of institutions, the assets have been expanding, growing profitability, operators gradually standardized and growing role in China’s financial system. Through the analysis of the data input and output indicators, we can see the differences is obvious in finance companies in China, therefore need to be differentiated business model and regulatory policies.Second, on the whole, the overall FUE is low, nearly 50% institution below the industry average FUE. Pure technical efficiency is greater than the scale efficiency. In order to improve the FUE, improving the pure technical efficiency is preferred.Third, from the captical structure, the central state-owned enterprises and local state-owned enterprises finance companies FUE is better than private enterprises and foreign-funded enterprises. The FUE of foreign-funded enterprises is relatively low for nearly four years, because the use of funds is subject to certain restrictions.Fourth, the FUE of the military industry and the steel industry are lead to the others industry in 2010, because these two sectors of finance companies have a comparative advantage in terms of pure technical efficiency. And the FUE of the power industry’s finance company is the lowest, mainly by the impact of the pure technical efficiency.Fifth, based on the emperised,32 finance companies have input slacks, capital slacks about 10.49% and the cost slacks 37.45%. the number of employees is the main reason to expand the operating cost. And 13 financial companies have the investment income output slacks. The finance company of CNOOC has the most investment income output slacks.Sixth, to the benchmark finance company, I believe the Finance Company Ltd. of Ansteel Group is the credit-based finance company, and the CSIC Finance Co. Ltd is the invest-based finance company. Most finance companies are the credit-based at present.Seventh, the FUE increased about 4.8% from 2007 to 2010 and because of the pure technical efficiency mainly. But the Malmquist Productivity Index discreased about 11%, mainly due to technical regress impact of 15.2%.The innovations of the paper are as follows:For one thing, enrich the emperical researchcontents for the study on the finance company, and has certain reference value for the subsequent empirical research on the finance company efficiency.Second, compensate for the longitudinal evaluation of the research content of financial companies fund use efficiency from the point of view of efficiency, the sustainable development of the research and financial companies have reference value.Third, puts forward measures to improve the FUE of finance company based on the empirical research. And has certain significance in the actual operation of the process of the finance company.Due to the author’s limited knowledge and time in writing this paper, there may be some defects and errors in the text. Criticisms from experts are highly appreciated.