The Analysis Of The Operational Efficiency Of China’s Commercial Bank Using DEA Method And Multiple Regression Analysis Method

In recent years, as the continuously development in the commercial bankingindustry, the operation efficiency of commercial banks has gained more and moreattention among economists and government supervision departments. Nowadays, mostresearchers from all over the world use Data Envelop Analysis, aka DEA method, toperform operational efficiency analysis. DEA is a non-parametric linear programmingdesign and it has been widely used to analyze the relative efficiency among differentdecision units. However, the DEA method still have certain limitation and could onlyprovide objective analysis instead of subjective support.In this paper, the writer fully considered the limitation of DEA method and applieda combination of multiple regression analysis and DEA to analyze the operationalefficiency of China’s commercial banking industry. After using DEA to analyze theoperational efficiency of the targets, the writer used DEA efficiency emulation value asthe independent variable, used output and input index as dependent variable to conductmultiple regression analysis. By analyzing the coefficient of the variables and itssignificance, the writer ruled out certain variables. The writer then used the filteredvariables to conduct a second DEA analysis to get the actual efficiency performance. Byusing the combination of DEA and multiple regression analysis, the writer ensured amore accurate and objective result.The empirical analysis shows, the operational efficiency of China’s commercialbanks has been steadily increased in the past five years. The operational efficiency oflarge state-controlled commercial banks is significantly lower than their joint-equitypeers. The source of the deficiency mostly comes from scale of inefficiency. Based onthe empirical analysis, the writer proposed the following recommendations to improvethe operational efficiency of China’s commercial banks: optimization of management,lower operating cost, control of employee number, keep a reasonable deposit-loan ratio,improve innovation and increase non-interest revenue.