Research On The Scale Economy Of Listed Commercial Banks Based On Non-parametric Local Estimation Method

In recent years the size of the total assets of China’s listed commercial banks soared to accelerate the pace of development, and sustainable development issues began to highlight. China’s commercial banks should encourage the research for the economies of scale of China’s listed banks issue based on how to improve the management ability, risk control ability and innovation ability in the expansion of scale.This paper selects thirteen listed commercial banks from2001to2011as the sample data.by using the dual method we selected variables:loans, deposits, investment (including short-term investment, long-term investment and securities investment), interest payments, operating costs, and human resources cost, capital and total assets, total variable cost.The economies of scale of China’s listed commercial banks was studied by nonparametric local linear estimation at the first time in China. In order to facilitate the statistics, the article chose data of the three time points2001Q4,2006Q4,2011Q4from the total sample. Finally, through the empirical analysis we could draw a conclusion that both China’s large and medium-sized state-owned banks and joint-stock commercial banks faced decreasing returns to scale.The result is different from most of the early studies,in addition to the part of joint-stock commercial banks. China’s financial regulators deemed banks shoud be too big to fail,which is to avoid the occurrence of systemic risk of banks would caused severe impact on China’s economy.But this didn’t mean that China’s commercial banks should face the endless expansion of business scale. Based on the sound operation, we should be develop the sustainable banking,and encourage the return of scale is increasing at the same time.And we should speed up the reform of the banking industry, especially the reform of state-owned commercial banks, strengthen management capabilities, enhance information technology innovation ability, improving the innovation mechanism of financial products, expand product categories,and strengthen the business and service innovation, so the allocation of financial resources can be better in serving the real economy in china.The biggest contribution in this paper is to introduce nonparametric local linear estimation method on China’s commercial banks at the first time, and this method in the economies of scale research field of foreign commercial bank is a new research method. The fully nonparametric estimation method allows great flexibility, this estimation strategy has two main characteristics:first, because this is completely nonparametric estimation method, so on the time and other explanatory variables interact, this paper does not impose any restrictions. Second, fully nonparametric method is local, i.e. when we estimated the cost at a point in time, other pointt of observation on the results have not even less impact on this point. Nonparametric local linear estimation method is a best method among many linear estimation methods for estimating the ecomomies of scale, because it does not exist the boundary effect, the convergence speed of boundary points and interior points are the same, the function’s deviation is relatively small, and the deviation is independent from the density function. At the same time, this paper also compared the nonparametric local linear method with the commonly used parametric methods such as the Cobb-Douglas cost function approach, translog cost function method, generalized translog cost function method, the composite cost function, after that we can known nonparametric local linear estimation is the best method at the present.