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Market entry, privatization and bank performance in transition

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Author Info

  • Steven Fries
  • Damien Neven
  • Paul Seabright
  • Anita Taci

Abstract

This paper examines how market entry and privatization have affected the margins and marginal costs of banks in the post-communist transition. We estimate bank revenue and cost functions, allowing the estimated parameters to change over time. In the first sub-period (1995-98), we find that privatized banks earned higher margins than other banks, while foreign start-ups had lower marginal costs. In the third sub-period (2002-2004), foreign banks remained low marginal cost service providers, while privatized domestic banks had the widest margins. Subtracting marginal costs from margins to calculate mark-ups, an indication of demand for services, shows that initially privatized banks had the largest mark-ups. However, by the third sub-period, differences among private banks diminished. In comparison to private banks, state banks persistently under-performed in controlling costs and attracting demand. Our evidence therefore indicates that foreign bank entry promoted lower costs and that privatization and market entry encouraged more demand for services. Copyright (c) 2006 The Authors Journal compilation (c) 2006 The European Bank for Reconstruction and Development..

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Bibliographic Info

Article provided by The European Bank for Reconstruction and Development in its journal Economics of Transition.

Volume (Year): 14 (2006)
Issue (Month): 4 (October)
Pages: 579-610

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Handle: RePEc:bla:etrans:v:14:y:2006:i:4:p:579-610

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References

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Citations

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Cited by:
  1. Chen, Chien-Hsun & Mai, Chao-Cheng & Liu, Yu-Lin & Mai, Shin-Ying, 2009. "Privatization and optimal share release in the Chinese banking industry," Economic Modelling, Elsevier, vol. 26(6), pages 1161-1171, November.
  2. Elena Pelinescu & Petre Caraiani, 2012. "The Credit Policy And Its Impact On The Romanian Economy," New Trends in Modelling and Economic Forecast (MEF 2011), ROMANIAN ACADEMY – INSTITUTE FOR ECONOMIC FORECASTING & "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences, vol. 1(1), pages 54-68, January.
  3. Cândida Ferreira, 2009. "European Integration and the Credit Channel Transmission of Monetary Policy," Working Papers Department of Economics 2009/07, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  4. Brown, Martin & Maurer, Maria Rueda & Pak, Tamara & Tynaev, Nurlanbek, 2009. "The impact of banking sector reform in a transition economy: Evidence from Kyrgyzstan," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1677-1687, September.
  5. Rainer Haselmann & Paul Wachtel, 2007. "Risk Taking by Banks in the Transition Countries," Comparative Economic Studies, Palgrave Macmillan, vol. 49(3), pages 411-429, September.
  6. Claude Berthomieu & Anastasia Ri, 2009. "Process and Effects of Financial Liberalization in Transition Countries: A Selective Literature Survey," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(4), pages 453-473, December.
  7. repec:ebl:ecbull:v:4:y:2008:i:14:p:1-5 is not listed on IDEAS
  8. Felix Höffler, 2008. "On the consistent use of linear demand systems if not all varieties are available," Economics Bulletin, AccessEcon, vol. 4(14), pages 1-5.

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