The impact of foreign ownership and off-shore investing on technical efficiency: evidence from Chinese managed funds industry

In a landmark reform in the managed fund industry, China permitted foreign joint ventures as well as off-shore investing. Have these decisions helped improved the efficiency of the industry? We examine this hitherto unexamined question in the literature, using a robust method of efficiency analysis—bootstrap data envelopment analysis. We compute the bootstrap efficiency scores and regress them using truncated regression on environmental variables. We focus on 64 of 69 funds management companies in China from 2003 to 2011 using a unique dataset made available to us. We find that there is considerable room for funds management companies to improve technical efficiency to ultimately bring increased benefits to investors. We find that foreign ownership has not helped efficiency improvement. Similarly, off-shore investing had no impact on technical efficiency. A number of regulatory constraints still persist in China, which makes it hard for the previously measured to yield efficiency gains. We recommend further liberalization of the sector, for example, by removing restriction on distribution of foreign funds