In this paper, we apply the translog cost function as proposed by Aigner et al(1977) to derive measures of X-inefficiency and scale inefficiency, under the assumption that the errors are distributed half-normal, then we test the structure-performance relationship in Chinese banking. From the results,we find that only scale-inefficiency have a positive and significant relationship with profitability, but the other variables havenot. That is to say, we do not find evidence to support the structure-conduct-performance hypothesis in Chinese banking industry. However, we donot find evidence to support the efficient-performance hypothesis either.
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