A Study Of Econometric Models For Economies Of Scale In Banks

After30years of reform, there are more and more banks in China, and banks are becoming bigger and bigger. This trend triggered heated discussion about economies of scale in China banks. Reviewing related researches, combining new features in China banks and providing valuable conclusions will affect not only the next step of banking industry development but also the financial system reform measures.There are two existing econometric models for economies of scale in banks:Cobb-Douglas and Translog. Using the same sample, these two models will provide different coefficients of scale economy δlnC/δlnQ. And the difference may be huge.One of this dissertation’s contributions is finding out the reason that can explain the difference between the two coefficients extimated by Cobb-Douglas and Translog.This dissertation’s another contribution is proposing two econometric models for analyzing the economies of scale in banks and combining the two new models and the two existing models to form a framework for analyzing the economies of scale in banks."Perfect Complement Model", proposed in this dissertation, introduces the factor price changes into analyzing the economies of scale and examines how the factor price changes will affect thecoefficient of scale economy.“Variable factor price Cobb-Douglasmodel”, also proposed here, can measure the nature of the costfunction and the production function separately.This dissertation selects16listed China banks from2006to2011as the sample. The data indicates that: nowadays, Chinabanks are diseconomies of scale. That is, if the output increased by1%, the total cost would go up by1.18%.For the larger0.18%increasement of total cost than the output,the production diseconomies of scale accounts for25%, and therising factor price accounts for the rest75%. The latter one is themain reason for the low operation efficiency in China banks.This dissertation also talks about the way that banks expandand how it will affects my study. At last, taking how banks view therisk into account is suggested as the directions for future research.