This paper adopts the Hicks-Moorstein (HM) TFP index and Data
Envelopment Analysis (DEA) to explore efficiency and its relation to changes in
profitability and productivity in Chinese commercial banks (CBs). We decompose
the HM TFP index into changes in technology, pure technical efficiency, scale
efficiency, and output mix and then test for distribution differences when
comparing the Malmquist and Hicks-Moorstein productivity indices for a given
type of data. The study results reveal that the CBs experience primarily an
increment of mix-efficiency rather than an improvement in pure technical
efficiency (improvement in management practices) and that Chinese CBs pursue
technological progress to meet the requirements for financial innovation and
internet banking. This paper highlights the importance of analyzing performance
from multiple perspectives and provides alternative explanations of improving
productivity and profitability based on technical efficiency in general. Our
results indicate that including non-performing loans as the input increases the
efficiency score, but off-balance sheet items do not have a significant impact.
JEL classification numbers: D24, E58, G24.
Keywords: Trading Conditions, Hicks-Moorsteen(HM) TFP index, Data
Envelopment Analysis (DEA), Productivity, Profitability.