Empirical Analysis On The Relationship Between The Efficiency And Credit Risk Of Chinses Listed Banks

Since the banking reform in the 1980s, there is a constantly improving on Chinese financial system. The Chinese current amount of financial assets have been among the world's forefront. Nowadays there is a large financial markets and financial environment is changing everyday. Therefore China must strengthen the controlling of financial risk to ensure effective response to changing of international financial environment. This requires that Chinese financial system must have the ability of controlling the risk and improving the efficiency, in order to ensure the continuous development of China's financial system. The banks take the core role in Chinese financial system. Changes on banks'efficiency and risk direct impact on entire financial system of China.the normal operation. As a result, the study of banking is so essential for Chinese financial system.For the conclusion on the relationship between bank efficiency and risk has not yet formed, we use the quarterly data of 14 listed banks of China from 2008 to 2010 to find the relationship between efficiency and credit risk.In this paper, we firstly measure the cost efficiency and profit efficiency using the Malmquist index based on data envelopment analysis (DEA). Then, we measure the credit risk using Distance to default which comes from the KMV model. At the last, we measure the relationship between the efficiency and credit risk using Panel VAR model. The results showed that the rise of credit risk in commercial bank will lead to a decline of cost efficiency and profit efficiency. There is a causal relationship from credit risk to efficiency. At the same time, the changes of cost efficiency have no significant effect on the credit risk. However, the profit efficiency has a positive effect on the credit risk, which indicate that the higher is the profit efficiency, the higher is the credit risk, and vice versa.