Banks' Cost Efficiency And The Choice Of Strategic Investors

City Commercial Banks which are a special and important component of Chinese banking industry.In recent years,city commercial banks have a rapid development,but they also face some problems such as government equity ratio is too large,the scale of assets is too small,the rising of credit risk and the defects of management system.In order to solve the above problems,the city commercial banks have to seek the aid of strategic investors.It also produced some meaningful issues,the most important is "the necessity of strategic investment" and "the choice of strategic investors".Strategic investors are mainly divided into three categories:foreign strategic investors,domestic investors which are financial institutions,domestic investors which are non-financial institutions.At present,the study of the domestic strategic investors is rare and the sample size is too small that do not have universal significance.This article will use the unbalance panal data of 103 city commercial banks in China from 2007 to 2015.Then we will use stochastic frontier method to measure the cost efficiency of the city commercial banks and use the difference-in-differences model to analyze the impacts of the efficiency of city commercial banks which bring in different types of strategic investors.Through the study we found that bring strategic investors can improve the cost efficiency of city commercial banks,it means that strategic investment is necessary.The domestic strategic investors and foreign strategic investors both can improve the cost efficiency of city commercial banks,but the domestic strategic investors are more efficient than the foreign strategic investors.Further to subdivide the domestic strategic investors into domestic financial institutions and non-financial firms.We find that the domestic financial institutions can help the city commercial banks improve their efficiency most,while the foreign strategic investors can also improve the efficiency.But the domestic non-financial firms have no effect on the cost efficiency of city commercial banks.In order to further test the difference of every types of strategic investors,we use a t-test to compare the difference between groups.We find that the optimal is domestic financial institutions,the second is foreign strategic investors,and finally is the domestic non-financial firms.Therefore,this paper argues that Chinese city commercial banks should actively introduce strategic investors.The optimum choice is domestic financial institutions.However,the ways of cooperation between Chinese city commercial banks and domestic industrial enterprises should be improved.